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Credit administration department housekeeping: Practical steps for improvement

Kate Randazzo
February 16, 2024
Read Time: 0 min

Preparing your credit administration for the next cycle

Financial institutions should consider these tips for maintaining an efficient credit process throughout the year.

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Takeaway 1

Credit administration housekeeping should clean up processes that could be streamlined to save time and effort.

Takeaway 2

With proper planning and effective strategies, the scheduling process can be made more manageable at your financial institution.

Takeaway 3

Credit analysts need training to understand the working capital cycle, look for hidden risks, and be aware of accounting changes.

Introduction

The importance of efficient credit administration

Credit departments play a crucial role in the financial industry, and it is important to ensure that they are functioning at their best. A financial institution's credit administration department deals with all steps of the credit process. Credit administration staff are responsible for managing the entire credit process, including the approval of credit to borrowers, assessment of the creditworthiness of potential customers, and credit review of existing borrowers.

Housekeeping for your financial institution’s credit department involves more than just keeping things organized. It's about ensuring that every aspect of your lending operation is optimized for efficiency and effectiveness. One way to do this is to take stock of your credit administration processes and make necessary adjustments. Whether it's at the start of a year or some other time, focusing on these key areas will help you fine-tune your operations and set your financial institution up for success in the year ahead.

Streamline your department

Clean up your credit administration processes

Credit administration housekeeping needs to address areas of a financial institution's processes that could be streamlined to save time and effort.

  • Clarify expectations: Ensure that everyone on your team understands their roles and responsibilities. Clearly defined policies and procedures can help avoid confusion and streamline credit operations.
  • Customize documentation: Avoid a one-size-fits-all approach to documentation when it comes to the underwriting process. Tailor your templates for short-form and long-form underwriting and differentiate between a simple review and an annual review. This will save time by ensuring that staff aren’t adding unnecessary length and detail to low-risk, low-maintenance documents.
  • Improve tickler management: Ticklers are often managed by committee, but accountability and follow-through are necessary to ensure these tasks are handled efficiently. Assign clear responsibilities and establish accountability at all levels—from mechanics and calculations to analysis of covenant breaches. If your financial institution is considering automation, credit risk software can track ticklers and help manage loan documents and credit exceptions.
  • Reduce exceptions: Too many credit exceptions can lead to confusion and inefficiency. Focus on addressing the most critical issues and limit the number of exceptions to a manageable level. In a recent Abrigo webinar, Kent Kirby challenged credit officers to pick out five exceptions to stick to for one year—this can help them pinpoint the right exceptions for their unique institution and streamline their processes.
  • Ensure regulatory compliance: Stay ahead of regulatory requirements by ensuring accurate credit risk ratings, robust global cash flow analysis, and proactive rate-risk Regular portfolio monitoring is key to identifying potential issues and addressing them promptly. Kirby also recommends identifying the concentrations in your loan portfolio so regulators can see that you are planning for the future of whatever industries your financial institution specializes in.

Assess and control key risk areas with an effective credit policy. Get details in "A guide to implementing credit policy."

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Plan ahead

Optimize your credit department schedule

Scheduling in bank and credit union credit departments can be challenging, especially when dealing with the unpredictability of new money requests. However, with proper planning and effective strategies, the scheduling process can be made more manageable. Here are some key insights and strategies to consider:

  • Understand your timing: The credit year is not always January through December. For many businesses, especially those in real estate or agribusiness, the fiscal year may differ. By aligning your scheduling with these industry-specific timelines, you can avoid unnecessary stress and prioritize your workload effectively.
  • Embrace technology: Unlike in the past, today's banks have access to advanced systems that can streamline scheduling processes, such as loan administration software. Utilize these tools to track renewals, annual reviews, and other key dates, ensuring that nothing falls through the cracks.
  • Collaborate effectively: Credit is a holistic process that requires collaboration between analysts and lenders. Foster a collaborative environment where both parties can share insights and make informed decisions together, leading to more efficient scheduling and risk management.
  • Prioritize spreading: Spreading financial statements should be seen as a separate project and done promptly upon receipt. Credit spreading software can streamline this process and make it easier to track important tasks. This allows for timely risk rating, covenant testing, and packet creation, reducing the likelihood of last-minute rushes.
  • Minimize rework: Avoid unnecessary rework by getting all approvals done at once, especially for loans with similar timelines. Consider implementing guidance lines for customers with multiple financing needs to streamline the approval process.

Develop talent

Train and educate credit administration staff

Credit analysts are the backbone of any credit process, yet their education and training are often overlooked or underprioritized. Analysts need to be trained to understand the working capital cycle, look for hidden risks, and be aware of accounting changes. Here are some areas you might want your analyst training to cover:

  • Understanding the working capital cycle: The working capital cycle, also known as the trade cycle, is a critical aspect of credit analysis that is often overlooked. Analysts should be trained to understand how companies use trade to finance their obligations and recognize when they may need bank intervention. This includes understanding factors such as seasonality, inventory management, and payment terms.
  • Identifying hidden risks: Analysts should be trained to identify hidden risks at the financial institution. This includes looking beyond the obvious factors and considering supply chain disruptions, labor shortages, and other external factors that can impact a borrower's ability to repay.
  • Avoiding glittering generalities: Analysts should be cautious of relying on glittering generalities, such as broad market trends or industry reports, without considering the specific circumstances of the borrower. It's important to dig deep and understand the unique challenges and opportunities affecting each borrower and your own financial institution.
  • Staying up to date on accounting changes: Analysts should be aware of accounting changes, such as the treatment of troubled debt restructurings (TDRs) under CECL, and ensure that their policies and procedures are updated accordingly.
  • Specialization for portfolio concentrations: For banks and credit unions with heavy portfolio concentrations, consider assigning specialized analysts to handle more complicated deals within those concentrations. This can provide a more comprehensive understanding of the portfolio and help mitigate risks.

In conclusion, credit departments play a crucial role in the financial industry and there are several practical steps that can be taken to improve their functioning. These steps include effective housekeeping, optimizing scheduling, and training and educating staff. By focusing on these key areas, credit departments can fine-tune their operations and set themselves up for ongoing success.

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We can help you simplify portfolio management. Abrigo’s credit risk software automates loan administration processes like managing ticklers and tracking loan document and credit exceptions. Talk to a specialist to learn more.
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About the Author

Kate Randazzo

Content Marketing Manager
Kate Randazzo is a Content Marketing Manager at Abrigo, where she works with industry thought leaders to create digital content that helps financial institutions better serve their customers. Before joining Abrigo, Kate managed social media and produced articles for Campbell University’s quarterly magazine and other university content initiatives. She earned

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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