relationship-based banking: balancing relationships & risk
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Presented by:
Jay Borkowski, Vice President, Sageworks
Joe Waites, President, CECO Management Consultants
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Financial information company that provides credit and risk management solutions to financial institutions
Data and applications used by thousands of financial institutions and accounting firms across North America
Awards
◦ Named to Inc. 500 list of fastest growing privately held companies in the U.S.
◦ Named to Deloitte’s Technology Fast 500
CECO (Capital Efficiency Consulting) has provided consulting services to financial services companies for over nine years
Areas of expertise include strategy, credit, revenue optimization, operational effectiveness, market and customer build and others
We are committed to delivering tangible, measurable benefits to the operating results of our clients
Jay Borkowski Jay Borkowski is a principal of Sageworks and vice
president of the company’s financial institutions division. He oversees a team responsible for assisting banks and credit unions with risk management.
Joe Waites Joe Waites is the founder and president of CECO
Management Consultants. He has over 30 years of financial services consulting experience. He manages many of CECO’s practice areas.
What is Relationship-Based Banking?
What is Relationship-Based Lending?
Advantages of Relationship-Based Lending for the Institution & Borrower
Areas of Caution
3 Ways to Balance Risk & Relationships ◦ Outlining key credit risk metrics & thresholds
◦ Defining roles and responsibilities among staff members
◦ Implementing standardized credit risk analysis systems
Benefits of Balancing Relationships & Risk
Examples
Provision of financial services by a financial
intermediary on the basis of long-term investment
in obtaining firm-specific information through
multiple interactions with the customer
When, in lending, financial institutions use
personal knowledge of the business borrower over
time to overcome issues of information opacity
Smaller financial institutions have traditionally held
an edge over larger financial institutions
Boosts likelihood of winning the borrower’s future
loan business
Could mean more revenues from multiple product
lines and referral business
Businesses may be willing to pay a slight premium
to borrow from a local bank
Longer duration of the relationship, greater credit
availability and understanding of needs
Lower collateral requirements for the borrower
Personalized service and increased chances of loan
approval
Minimal analysis of credit risk during underwriting
Subjective assessments of creditworthiness
Less comprehensive annual review
Difficulty justifying relationship-based loan
decisions in exams and to board
When determining the market capacity, with
regards to lending, relationships must be
considered
When determining the industry capacity, with
regards to lending, relationships must be
considered
1. Outline key credit risk metrics and thresholds
2. Define roles and responsibilities among staff
members
3. Implement standardized credit risk analysis
systems
Business credit scores Personal credit scores
Probability of default metrics
Debt service coverage ratios
Loan to value ratios Overall ratio analysis
Global cash flow analysis UCA cash flow analysis
Outline, in policy, who is assigned to:
◦ Initial credit analysis
◦ Loan review
◦ Post-funding analysis
Assign responsibilities and reinforce accountability
Components of post-funding analysis that tend to
slip through the cracks:
◦ Who must obtain financial statements or other documents
◦ Who must conduct a global credit analysis
Can improve consistency and objectivity by separating
credit analysis function from lending
With proper responsibilities defined processes with
approval will not be skipped
Train staff not only in the institution’s products and
policies, but also in understanding all of the client’s
needs to offer relationship-based solutions
Educate staff so they can properly set expectations with
clients
Standardized credit risk systems in a relationship-
based banking environment help with:
◦ Uniformity of credit analysis and loan files across borrowers
◦ Objective assessments of creditworthiness
◦ Efficiency in annual reviews
◦ Documentation of credit analysis and loan reviews for
examiners and board
◦ Better insight into borrower’s industry
Solutions can specifically assist with:
◦ Spreading financial statements and tax returns
◦ Calculating key ratios
◦ Consistent global cash flow analysis
◦ Accessing personal and business credit scores
◦ Comparing the business to industry peers
◦ Structuring workflow
Customer service
Better able to justify risk-based pricing
Open up dialogue with businesses that don’t
currently meet financial institution’s credit risk
criteria
Improved efficiency in the lending process
Ability to address credit deterioration earlier
Relationships with regulators
Jay Borkowski Vice President, Sageworks
(919) 851-7474 ext. 502
www.sageworksanalyst.com
Joe Waites President, CECO Management Consultants
(678) 318-1755 ext. 101
www.cecoconsultants.com