This document discusses common questions and challenges related to managing small and medium-sized enterprise (SME) lending portfolios. It provides answers and recommendations for validating small business models, ensuring lending rules are followed, convincing management to monitor SME portfolios, growing an SME portfolio quickly, maintaining margins without pricing out the market, and complying with regulations for SME lending. The document encourages treating SME portfolios similarly to retail portfolios and looking at profitability holistically, using risk-based pricing and automation to improve costs. It directs the reader to a blog and website for additional small business banking resources.

1. Is Managing the SME Portfolio Keeping You Up at Night ?

2. Let’s discuss some answers to your questions and get
you back in the game. Managing the SME Portfolio...

3. Q1: What is the best metric to use when validating
small business models?

4. *Due to smaller
volumes you may
need to use larger
time windows to get
sufficient cell
counts, but
otherwise it is
exactly the same
process.
But wait, there is more to consider...
Answer: Performance by Score Reports to measure separation*
(The same as with consumer models)

5. Accuracy
Bad rate analysis,
Delinquency and vintage Analysis
Back testing analysis
(predicted vs. actual bad rates)
Stability indices
Population stability
characteristic analysis
vintage analysis
Separation measures
ROC , Divergence and K-S
Consider these metrics when Validating Small Business Models...

6. Done.
You’ve already just gained an hour or two of sleep from that answer.
Next Question...

7. Q2: My Underwriters refuse to stick with my small
business lending rules. What can I do?

8. Answer: Work together to find better solutions for small
business lending rules. Review. Discuss & Train. Collaborate.

9. Review Policy Details.
Each organization’s credit risk
policy should provide details
around allowable high and low side
over-rides.
Discuss & Train.
Underwriters need good training
that will initiate productive
discussion to help underwriting
rules stick.
Collaborate on Over-
ride reports. Over-ride
reports should be produced by
underwriters to ensure compliance,
provide feedback and enhance
training.
Small Business Lending rules that stick (continued)...

10. Done.
You’ll be getting a full night’s sleep in no time.
Next Question...

11. Q3: How do I convince senior management that we
need to monitor our small business portfolios?

12. • Know key data
• Control operations
• Verify compliance
Answer: Be prepared by demonstrating the following...
• Show risk management strategy
• Uncover opportunities
• Stay ahead of the competition

13. Q4: I can’t grow my small business portfolio as fast
as senior management wants. What should I do?

14. Testing and tracking.
Review data. Test populations can be tracked
and managed.
Cultivate referral sources.
The internet is your friend. Do some research
& dive into social media.
Increase community
involvement.
Connect with existing customers
Connect with businesses banking
elsewhere & get to know them.
Answer: Encourage growth of small business portfolios by...

15. Q5: I can’t make my small business margins without
pricing myself out of the market. What can I do?

16. Answer: Evaluate the profitability of the small business effort
on a more holistic basis...

17. Evaluate
Market Research
Organizations need market
research to tell if they are priced
competitively.
Evaluate & Implement
Risk Based Pricing
Use of risk based pricing allows
banks to compensate for increased
risk.
Implement
Technology and
Automation
Technology & automation can
improve the cost to acquire and
manage.
Small business margins (continued)...

18. Got it?
You’re probably ready to sleep by now.
Just 1 more Question

19. Q6: Compliance is a headache for me in the consumer
world, now I am asked to take on the small business
world. How do I start?

20. • Start with the basics
 Basel
 Privacy
 Data security
 Dodd-Frank
• Treat the SME
portfolio the same as
any other retail
portfolio (this is required
under Basel anyway)
Answer: Learning small business compliance...

21. Those answers should shed some light on concerns
you may have managing the SME portfolio.
View the full blog - HERE - or
Visit our website for more on SME such as...
the Top 5 Fallacies of Small Business Banking

22. Thanks for viewing!
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www.BankersLab.com
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23. Flight Simulators for Bankers