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Misys Treasury & Capital Markets

Achieving STP in Commercial Lending

Ken KatzMisys Commercial Lending

Division

Product Manager Loan IQ

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What is STP?

• Straight Through Processing (STP) is the substitution of automated tasks and processes for manual ones so that a business process or service (e.g. the origination, servicing and disposition of a commercial loan) can be entirely automated from beginning to end. – All original information (e.g. customer and loan term information) is

entered only once in the process and ‘reused’ throughout the loan lifecycle

– Central database is sole repository for information

– Processes and workflow events are tied together seamlessly and performed without unnecessarily repetitive data entry or manual transition

Source: TowerGroup

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Critical Components of STP

• Real-time data processing

• Common database

• Business logic rules

• Automated workflow management

• Seamless integration of processes

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Full STP Value Proposition to Commercial Lending

Internal Integration

External Integration

Documentation

Risk &Compliance

PerfectingInternalSystems

GeneralLedgerCredit

Approval

Sales Force Automation

Customers

Regulators

LegalCounsel

SecondaryTrading

SyndicateMembers

ServiceBureaus

Remote / Wireless

Workflow & Data Management

LoanProducts

Reporting &Portfolio Mgmt.

Origination Booking Servicing

Core Loan Processing Cycle

Source: TowerGroup

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Current Lending Market Drives STP

• STP is a Necessity due to current commercial lending environment– Banks no longer hold large deposits for long periods

at high interest rates• Highly liquid market due to secondary trading, non-bank investors and

sophisticated derivative instruments

– Banks need to coordinate increasingly global information flow and work flows

• Need for a single platform to host and standardize data across different locations, time zones, currencies

– Banks need to comply with increasingly strict industry and government regulations

• Basel II, Sarbanes-Oxley Act

– Banks pressured to cut costs through improving operational efficiencies

• Net interest margins are at 20-year historical low

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US Bank’s Net Interest Margin (1996-2006)

3.00%

3.25%

3.50%

3.75%

4.00%

4.25%

4.50%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ALL US BANKS US BANKS WITH ASSETS OVER $15 BILLION (USD)

Net Interest Margin (%)

Net Interest Margins are a 20 year low, forcing banks to reduce costs through operational efficiencies.

Source: TowerGroup

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Increasingly Liquid Loan Market

Europe in 2006

Multiple players in the market and more ways for loan assets to be held means banks no longer hold loans for long periods at high interest rates.

Source: LSTA

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How can STP benefit financial institutions?

Source: TowerGroup

Straight Through Processing

Single Source Database

Operational Efficiency

Risk Management

EnhancedCustomer Service

Increased Revenue

• Elimination of redundant systems

• Workflow management

• Responsiveness • Cross sell opportunities

• Reduction of manual labor

• Data integrity • Accuracy • Improved customer retention

• Streamlined processes

• Exception management

• Reduced processing time

• Increased productivity

• Lowered costs • Accountability • More comprehensive knowledge of customer

• Risk-adjusted pricing

Single Source Database

Once only Data EntrySeamless Integration

of Processes & Workflow

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STP Technology Trends

• Business Process Management Systems (BPMS): Manage workflow—automate data gathering from host systems, apply standardized underwriting rules and policies, centralize reporting, and support on-going portfolio monitoring

• Electronic Content Management (ECM):Manage & deliver content– electronic and paper based documents, multimedia files, email, images, web pages and other communications

• Service Oriented Architecture (SOA): Web services used as a ‘wrapper’ around legacy system integration points to provide standard interface protocol

• Business rules management system (BRMS): Manage business rules, enforce policies, make decisions, standardize processes

Source: TowerGroup

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Why have banks not fully achieved STP?

• Increasingly complex loan transactions with multiple parties– System has to be able to link to clients, vendor systems,

credit bureaus, databases

• Consolidation of front and back office processes and workflow is costly and requires organizational change

• Difficult for banks to define clear workflow and information flows needed for full STP – Lack of industry standards in fast developing commercial

lending industry

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Achieving STP Efficiency

• “Policy and process first” approach before making major technology investment– Technology should not lead the solution but rather enable

the solution

• Bank’s internal front and back office divisions need to be aligned

Policy

ProcessPeople

Technology

Benefit

Source: Benchmark Consulting International

70% 90% 100%

Optimization Pathway

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Questions and Answers