Rethinking Loan Spreading Technology: Key Differentiators for Credit Risk Analysis Software

Boosting your bank’s bottom line is a fairly simple formula: Create a scalable process, make sound credit decisions, and institute accurate monitoring practices. Of course, that’s often easier said than done. Manual data entry, lengthy loan processing time, and inaccurate reporting can quickly impede the success of that equation. For some community financial institutions, many steps in the life-of-loan process are handled in disparate systems. As loan volume grows, lenders, analysts, and loan administration officers will then have to manage multiple spreadsheets and programs that introduce risk of manual data-entry error and inefficiency that dampens their ability to grow.

Savvy financial institutions are finding that technology can help solve many time-consuming, manual tasks to enable analysts to quickly spread and analyze proposed loans and make smarter decisions. The question is no longer whether or not a financial institution should leverage technology to make faster, smarter credit decisions, but rather, which technology to choose. Technology today allows financial institutions to do more than simply spread financial statements. Here are three areas your automated spreading solution should address.

Manage the portfolio

One of the biggest challenges of credit analysis comes down to data collection and dissemination. With manual data entry, analysts are prone to spreadsheet errors, inefficiencies, and incomplete stress tests. Whether we like it or not, computers are more accurate than we are. By investing in the right technology, your institution can reduce or eliminate manual data entry and, in turn, reduce or eliminate data entry errors. For example, some technology enables your institution to pull in real-time credit scores, business scores, and debt information. Other features that help your credit analyst to manage the portfolio include:

• Easy input and automated business projections
• Dynamic narrative analysis to give institutions an in-depth look at the business’s financial health industry benchmarks and tips for improvements
• Customizable and easily configured credit memos
• Data flows into stress tests

Solve for inefficient processes

The credit spreading process can be extremely frustrating and time-consuming. Calculations and analyses can frequently differ between lenders, and multiple presentation types in loan committee can lead to inefficient processes. The right loan spreading and credit analysis solution will bolster your institution’s commercial lending process to make it consistent and efficient – the key is to leverage a spreading technology that goes beyond just spreading. For example, technology that offers dynamic narrative analysis can enable the bank’s loan committee meetings and approval process to run more smoothly with an easy-to-understand write-up of the business and the industry. To solve for additional inefficiencies, automation is key. Here are the automation features your institution should look for:

• Automatic import and central storage of customer financial data
• Automatic corrections for double counting
• Global financial analysis to account for multiple businesses, people, and properties

Make compliance and reporting easy

Finding the right loan spreading software not only makes your institutions’ credit analysts’ lives easier, but it also satisfies another important group of people: examiners. Inconsistencies, while time-consuming and frustrating, can have much more serious impacts on your financial institution, and examiners are on high alert. Banks that reach for growth by lending to less creditworthy borrowers boosts risk to the institution, so it’s important that institutions are able to create a defensible loan portfolio.

Finding the right technology to create reliable, objective loan decisions that can define and track custom metrics throughout the loan’s lifecycle is significantly more impactful for defensibility than having to justify and test “gut feelings.” Features such as global cash flow analysis and real-time benchmarking against business clients can enable institutions to more quickly and accurately qualify borrowers.

Millennium Bank, an Abrigo Credit Analysis customer, has found that the reporting is especially helpful when presenting to its board of directors. “We can now present a more concise presentation that builds a stronger case for why we feel that credit is worthy to do…and we can do that in half the time it used to take, if not better,” said John Hatfield, Credit Officer at Millennium Bank.

Technology that provides breadth and depth of analysis help satisfy compliance and reporting. This includes:

• What-if scenarios for faster loan approval
• Presentation-ready analysis
• Easy-to-generate calculation documentation

To maintain a competitive edge and add velocity to loan growth, your institution must also have scalable processes set in place to grow safely and soundly. Today’s technology affords so much more than simply loan spreading. Investing in technology that goes beyond loan spreading, your financial institution will benefit from new efficiencies in nearly every aspect of credit analysis. Creating efficiencies doesn’t just mean speed. Rather, these efficiencies help analysts focus their energy on bigger loans; clients and prospective clients get loans turned around faster generating a more positive borrower experience; the institution is able to boost its bottom line while simultaneously enhancing the defensibility of the portfolio. This list, while not exhaustive, is a good place to start when assessing various credit analysis and spreading systems.