Relationship-Based Banking: Balancing Relationships & Risk


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Relationship-Based Banking: Balancing Relationships & Risk

  1. 1. Presented by: Jay Borkowski, Vice President, Sageworks Joe Waites, President, CECO Management Consultants
  2. 2. To ask a question during the webinar, feel free to enter it into the chat box along the right hand side of your screen. Slides are available there, too. Link to download slides Area to enter questions or write-in poll answers
  3. 3.    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
  4. 4.    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
  5. 5.  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.
  6. 6.      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
  7. 7.  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
  8. 8.  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
  9. 9.  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
  10. 10.  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
  11. 11.  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
  12. 12.  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
  13. 13. 1. Outline key credit risk metrics and thresholds 2. Define roles and responsibilities among staff members 3. Implement standardized credit risk analysis systems
  14. 14. 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
  15. 15.  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
  16. 16.  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
  17. 17.  Standardized credit risk systems in a relationshipbased 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
  18. 18.  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
  19. 19.  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
  20. 20. Jay Borkowski Vice President, Sageworks (919) 851-7474 ext. 502 Joe Waites President, CECO Management Consultants (678) 318-1755 ext. 101