Centralizing credit administration can improve credit discipline
By Bill Adkins, JMFA Regional Director and President of LoanOptimizer.com, a JMFA Company
In today’s highly competitive and rapidly changing financial climate, credit unions should consider implementing a centralized credit administration department to ensure proper credit discipline. Once a centralized credit department is in place, it will effectively remove the “back room” work from the lending platform to better support your lenders and provide them with additional time to focus on your credit union’s sales culture.
Hiring a skilled credit administrator is critical
So you’re ready to create a centralized credit administration department, now what? Start by hiring (or promoting from within) a knowledgeable manager to report directly to the credit union’s CEO.
The manager’s primary responsibilities are to develop, implement and communicate sound loan policies while overseeing the credit union’s entire loan portfolio. Often called the credit administrator, this officer-level position also provides vital support to the members of the Directors’ Loan Committee by completing special projects, researching questions and providing reports as needed or as set by policy.
The credit administrator you choose needs to be well versed on every aspect of the credit union’s loan policy, allowing him or her to communicate accurately with members, employees and the credit union’s directors.
The manager must also have the skills to provide technical support regarding financial analysis, loan structure, pricing, collateral/credit documentation, appraisal requirements and problem loan identification.
Department scope
In order to be effective, the credit administrator and his or her staff need to be the cog in the credit union’s lending wheel, overseeing all aspects of the credit union’s lending support activities such as analysis, underwriting, documentation processing, credit quality monitoring and records retention.
The credit administration staff must also be responsible for:
• implementing sound credit administration procedures to ensure full and appropriate use of credit union resources, while being consistent with the internal goals and objectives of the credit union;
• maintaining the ongoing review of Loan Approval Reports (LARs), interim statements and officer comments to monitor proper risk ratings and compliance with loan policy;
• assisting lenders in the preparation of financial statement spreadsheets and credit memoranda;
• overseeing the timely reporting of all credit decisions; and
• monitoring the reporting of all loans through a tracking system.
The credit administration department needs to review the process of compliance with underwriter requirements to maintain credit quality as well as provide member-driven support for the credit union.
What’s more, staff must carefully monitor loan documentation to ensure adequate collateral, as well as ensure security and risk management steps are always maintained. A sound credit administration department must make certain that a number of documents are maintained according to policy and regulatory requirements including:
• collateral documentation;
• collateral inspection;
• collateral evaluations; and
• credit compliance, which includes managing a tracking system and generating periodic reports.
Having a properly organized and centralized credit administration department will support your personnel in their efforts to manage the collection and recovery process throughout the institution, including consumer, commercial, OREO (Other Real Estate Owned) and other asset loans.
The payoff is huge
Taking steps to implement and leverage a strong centralized credit administration function is an essential tactic for credit unions looking to streamline lending operations and deliver new profits to the bottom line. By consolidating your credit administration activities into a single department dedicated solely to the loan platform, you’ll be amazed at how much more time the rest of your staff can devote to enhancing your sales culture and adding new revenue streams to offset tightening margins.
About John M. Floyd & Associates
John M. Floyd & Associates (JMFA) is a profitability and performance improvement consulting firm and a leading provider of overdraft privilege programs serving more than 2,000 financial institutions in 49 states and Central America. JMFA is also recognized for training, account acquisition, executive placement and earnings enhancement programs, as well as product, service, pricing and technology improvement consulting. As a direct result of our programs, JMFA has helped thousands of clients dramatically improve their performance and bottom line. To learn more about JMFA, please visit www.JMFA.com or call 800-809-2307.
About Bill Adkins
Bill Adkins is Regional Director for JMFA and President of LoanOptimizer.com, a JMFA Company. Prior to joining JMFA full time in 1998, he worked as a contract consultant for the company, assisting clients with credit policy and procedures, analyst training and lending strategies. Bill has more than 40 years experience in financial services. He has served as an instructor for college and graduate level financial courses. Bill was a contributing author for Bank Credit edited by Herbert Prochnow and published by Harper & Roe, now considered one of the industry’s foremost lending references. He has published numerous articles in financial industry publications.