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Alex Denby

Senior Risk Consultant

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News & Views / Navigating the evolving commercial credit landscape
23 November 2017

Navigating the evolving commercial credit landscape

Expanding commercial lending has been a strategic focus for many banks over the last few years, and this movement aligns with the growing number of Government-backed schemes to support SME lending. However, challenges inherent within commercial credit processes often hinder growth efforts.

When it comes to commercial lending, most credit processes – from application through to reporting – are often manual and time-consuming, open to inconsistencies and less supported by functional business areas.

While consumer lending has become more sophisticated, for commercial lenders, inadequacies in credit processes can create huge inefficiencies that often translate into delays for the customer, missed revenue opportunities and wasted time and resource.What’s more, increasing regulatory focus is putting the onus on the lender to make consistent and transparent commercial lending decisions.

At the same time, whilst the Corporate and SME lending market is currently dominated by a handful of large players, a series of digital start-ups and Fintech companies are moving into the space, launching new and innovative business services that challenge the status quo.

That’s why now more than ever, business lenders require tools and processes that enable them to accurately and confidently assess risk in an efficient and compliant manner. By taking basic steps to enhance common practices in the commercial credit process, lenders can comply with regulation, improve the customer experience, as well as deploy consistent processes without introducing onerous frameworks or significant I.T. change.

Steps to improve the commercial credit process:

1. Adopt a slotting approach to risk assessment

By using a ‘slotting’ approach, lenders can allocate a configurable grade that is generated from underlying scores assigned to the information lenders capture and consider key within decisioning. The resulting grade, in-turn, assigns metrics fundamental to downstream processes. For example, Probability of Default (PD) generated through slotting can be utilised across IFRS 9, risk-based pricing, portfolio monitoring and the assessing the viability of existing capital.

The PRA acknowledge the slotting approach as a sensible means to positioning an effective capital plan and, as a result, knowledge in this area should be enhanced – something Jaywing are keen to support lenders with. When adopting this approach lenders should track the scorecards in place over time, ensuring a record of the data is captured, together with the scores and the risk bandings that were in force at the time.

2. Leverage technology to keep track of how your applications are assessed

Technology should be used as a means of tracking and storing applications, of periodic reviews through the process, and to support and evidence consistent lending criteria in commercial decisioning. 

As a result, lenders can then make more informed decisions, create an audit trail of how those decisions were made and generate valuable data for use in future model builds and performance monitoring.

3. Simplify and streamline processes

Streamlining the lending process – and the processes that surround it – by using a defined and robust way of building scorecards, ensures that your risk management criteria aligns to internal governance and is consistent without enforcing any onerous processes on the underwriter or account managers. In addition, it also enables you to improve the process over time.

4. Tap into and store application data

Regulators and auditors expect lenders’ data utilisation, retention and submissions to be more detailed than ever before. However, many lenders are using legacy or ineffective credit systems, in which valuable data is either not captured or disappears. This inevitably reduces and weakens dependent processes like stress testing and IFRS 9, and compliance with BCBS 239. That’s why it’s crucial to ensure credit systems capture all sanctioning data, store it robustly (along with associated evidence such as company financial reports), and make it accessible for internal review and committee approval.  

5. Improve the customer experience

Without a well-structured, well-defined and consistent sanctioning process, a best-in-class service cannot be realised. The right tools can enable you to provide faster and fairer decisions proactively, ensuring your credit exposures optimise the balance between risk and reward.  

Staying ahead of the evolving landscape

In today’s increasingly competitive environment commercial lenders face a clear imperative: they must transform or risk falling behind. New competition, regulatory changes and technology are driving the need to operate at optimum levels, implement a high-performance culture, and be future-ready.

Echelon, is Jaywing’s new risk technology product for commercial lenders that enables firms to process commercial credit risk sanctioning faster and with greater consistency, while gathering and storing data to enable a cycle of continuous improvement.

To learn more about Echelon, or Jaywing’s other risk intelligence products and services, click here.