Vision 2014: The New World of Commercial Lending

© 2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc.

Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in

any form or manner without the prior written permission of Experian. Experian Public.

The new world of commercial lending — optimizing opportunities and winning new customers

Joanne Pollitt CEB TowerGroup

Mike Horrocks Experian

#vision2014

2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

Survey question

Do you know who

Kane Kramer is?

a)Yes

b)No


1,750,000,000

Who is Kane Kramer?


1970’s: Designs a credit card sized MP3 player – the IXI

1986: The IXI is hailed as the “the most radical system ever” by the audio industry

1988: Distracted from the business, he loses patents in 120 countries

2001: He buys his first iPod, along with eventually 1.75 billion other consumers

Who is Kane Kramer?


2014 trends


Key themes in commercial banking

Operating efficiency

Risk management

Customer experience management

Optimization of data management

Analytics


Commercial banking business, strategic

and technology priorities for 2014

Business drivers

Expectations for economic growth

Scope of regulatory change and growing intensity

of enforcement

Evolution of customer needs

Expansion of the digital channels

Increasing competition

Strategic responses

Modernize key technology and data management

systems

Incorporate regulatory risk management and

compliance reporting frameworks into operational

processes

Deploy technologies that support complex

relationship structures and service models that

enhance the client experience

Leverage new analytical capabilities to create new

sales opportunities and optimize product-level

profitability

Top-10 technology initiatives for commercial banking (2014)

Rationalize payments

infrastructure to improve

processing efficiency and

gain competitive

advantage

Optimize sourcing

strategies to enhance

business value of vendor

relationships

Centralize risk management

to ensure compliance and

mitigate enterprise-wide risk

Increase liquidity

management capabilities

to effectively manage the

balance sheet

Implement commercial

loan lifecycle

management to improve

customer acquisition and

credit utilization

Enhance the client

experience to improve

customer satisfaction and

loyalty

Enhance the digital

banking experience to

expand self-service

capabilities

Expand client/ bank

integration (payables,

receivables, B2Bank) to

deliver enhanced relationship

value and banking efficiency to

commercial clients

Formalize enterprise data

and analytics strategy to

improve enterprise

business performance

Improve sales

enablement to identify

customer needs and win

new business


Survey question

What is your top

commercial initiative

in 2014?

a) Commercial loan growth

b) Improved sales technology

c) Operational efficiency

d) Enhanced analytics


Commercial loan growth is a top priority

Primary commercial banking business focus for 2014 Percentage of credit bureau executives citing driver as “critical” or “high importance”

79% 78%

70%

52%

36%

0%

20%

40%

60%

80%

n = 113

Source: CEB Business Banking Leadership Council 2013 Agenda Poll

Maximizing

credit

application

Protecting

credit

portfolio

Building

efficient

portfolio

management

Reducing

back-office

expense

Reducing

sales

expense


Improve sales performance with technology

32%

41%

35%

44%

0%

25%

50%

Identify needs Make a sales pitch Build solution Close deal

n = 1,215 (Sales Managers); 39 (Banks).

Source: CEB 2013 Sales Environment Readiness Assessment.

Support across the sales cycle Percentage of sales managers selecting “describes fairly well” or “completely describes”

Identifying customer needs was most

often cited as an area where sales

managers do not feel supported with

the right technology


Improve sales performance with technology

29% 20% 12%

56% 60% 65%

15% 20% 23%

0%

50%

100%

Lagging Standard Emerging

Low Performers

Core Performers

High Performers

n = 1,215 (Sales Managers); 39 (Banks).

Source: CEB 2013 Sales Environment Readiness Assessment.

Sales team index composition as technology score increases Sales team performance composition as technology-enabled sales score increases

Commercial banks with a high technology

score have a larger population of high-

performing sales staff

Technology-enabled score


Build a better onboarding experience

Source: CEB TowerGroup Commercial Banking

Applicant New customer

The challenge of using disparate onboarding technologies

Front-end channel platform

Customer relationship management

Enterprise content management

Electronic signature

Compliance system (KYC, AML, fraud)

Challenges

Disjointed systems

Manual processes

Multiple data entry

Missing / omitted data

Errors and exceptions

Compliance risk

Long onboarding time

Customer dissatisfaction

Slow product utilization


Integrate credit lifecycle processes

Aggregate data on individual credits to monitor portfolio health

Understand risk concentrations

Stress-test portfolio

Adjust credit standards

Ensure sufficient capital and liquidity

Optimize pricing

Improve risk adjusted returns

Consolidating loan origination with monitoring improves process

efficiency and risk management

4. Servicing 2. Underwriting 3. Closing 1. Application 5. Credit

monitoring

ORIGINATION SERVICING

Monitor

borrower’s

financial health

Review credit

line utilization

Review new

financial

statements

Track financial

and non-financial

covenants

Rescore

borrower risk

Automate for

renewal or

escalate for review


Identify new applications for analytics

Source: CEB TowerGroup Commercial Banking

Evaluate the feasibility for improving commercial lending with data

and analytics initiatives

Analytics in

commercial

lending

Needs

identification

Market

analysis

Credit

underwriting

Complex

approval

workflows

AML / KYC

FATCA

Reporting


Customer sentiment


Low confidence in financial services providers among business owners

(40%)

(41%)

(45%)

(46%)

(48%)

(49%)

(52%)

(46%)

21%

20%

20%

19%

18%

15%

15%

18%

(60%) (50%) (40%) (30%) (20%) (10%) 0% 10% 20% 30%

Keeping their customers' money safe

Ensuring reliability andconsistency of transactions

Providing helpful guidance and advice

Keeping their commitments and promises

Caring about their customers

Sharing their customers' values

Offering clear and simple policies and fees

Overall confidence

Little or no confidence Complete or a lot of confidence

n = 2,075

Source: CEB, 2013 Business Owner Sentiment Survey

Confidence in financial services providers Percentage of global business owners who feel confident in the capabilities of financial services providers, Q3-2013


North American business owners are most satisfied with their financial products

31%

13%

8%

18%

40%

21%

0%

25%

50%

n = 2,075

Source: CEB, 2013 Business Owner Sentiment Survey

Satisfaction with financial products or services Net percentage of business owners who are satisfied with the products and services of their financial provider,

by region, Q3-2013

Asia Pacific Europe Latin

America

Middle East

& S. Africa

North

America

Global


Most businesses customers still prefer face- to-face channels

49% 20% 11% 20%

Proximity to banker

Closest Farthest

Face-to-face Over the

phone

Balanced

multichannel

Virtual

n = 619

Source: CEB, 2012 Business Owner Survey

Channel preference typology Percentage of business owners’ main channel preference


Quality of customer experience through service channels

Average customer assessment of the service quality of channels, 2013

n = 699

Source: CEB TowerGroup 2013 Financial Services Technology Investment and Adoption Survey

2.75

3.46

3.94 4.17

1

2

3

4

5

Mobile deviceapplications

Online Phone In person, face-to-face

5 = Excellent 4 = Good 3 = Fair 2 = Poor 1 = Awful

To improve

customer

satisfaction, banks

can look to

improve the

service quality of

the digital

channels by

expanding both

the capability and

usability of those

platforms

Online and mobile

channels are ranked

consistently lower

than traditional

methods in terms of

overall service quality

by bank customers

Improve quality of digital channels


The new commercial

landscape

What does this mean to you?


Healthy growth in U.S. commercial lending

$1,000,000

$1,100,000

$1,200,000

$1,300,000

$1,400,000

$1,500,000

$1,600,000

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Source: Federal Reserve; CEB analysis

$1,584,500

Outstanding commercial and industrial loan assets at U.S. Banks Millions USD, 2010 – 2013


Average loan size rises

$400

$450

$500

$550

$600

$650

$700

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

$620

The average commercial and industrial loan size grew from $513,000 in 2010 to $619,000 in 2013


Average commercial and industrial loan size Thousands USD, 2010 – 2013


Credit demand remains strong

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Large and Medium Firms Small Firms

Linear (Large and Medium Firms) Linear (Small Firms)

+16%

+14% Hig

her

de

ma

nd

Seasonal drop in

fourth quarter

Source: Federal Reserve Senior Loan Officer Survey; CEB analysis

U.S. demand for commercial and industrial loans Net percentage of senior loan officers reporting stronger demand, 2010 – Q1-2014


Rates stabilize, but remain low

2%

2%

3%

3%

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

2.25%


Commercial and industrial loan rate Weighted average effective loan rate for all commercial and industrial loans, 2010 – 2013


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Large and Medium Firms Small Firms

Credit terms continue to loosen


(14%)

(4%)

Trend line

Ea

sie

r C

red

it

Supply of commercial and industrial loans Net percentage of senior loan officers reporting tightening credit standards, 2010 – Q1-2014


Competition is driving strategy

5%

5%

11%

16%

21%

26%

37%

6%

5%

5%

11%

5%

16%

58%

0% 25% 50% 75% 100%

Improvement in bank's capital position

Improvement in bank's liquidity position

Increased liquidity in seconardy markets forcommercial loans

Increased tolerance for risk

Improvement in clients' industry-specificproblems

More favorable economic outlook

More aggressive competition from bank andnonbank lenders

Somewhat Important Very Important


Factors driving decision to loosen credit standard Percentage of senior loan officers citing as “somewhat” or “very important”, Q1-2014


In addition to

stricter regulatory

regimes, the global

banking landscape

is being

transformed by a

new set of

competitors

Technology companies are

pulling ahead of banks in

offering innovative mobile

payments and banking

services

Banks in emerging markets

and other strong regional

players are rapidly

expanding their market

share in both their home

markets as well as

overseas

New competitors are filling

the void left by traditional

banks in corporate lending,

primarily in the SME space Source: CEB analysis

Emerging market

banks

Mobile payments

New competitors are reshaping commercial banking

Non-bank business lending

Real Estate

Investment

Trusts (REITs)


Survey question

Have you seen commercial

or small business loans go

to competitors that were not

around five years ago?

a) Yes

b) No


What are your peers

doing?

What does this mean to you?


Taking on risk to improve margins

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Minimal Risk Low Risk Moderate Risk


Weekly commercial and industrial loan issues by risk type Commercial and industrial loan issue in first full week of second month during each quarter, millions USD, 2010 – 2013


Increasing investments in commercial lending technology

32%

45%

23% 34%

41%

24%

Commercial loan

origination

Commercial loan

monitoring

n = 22 (CLO); 29 (CLM)


Expected spend on commercial lending technology Percentage of respondents, 2014

Significantly increase

Moderate increase

No change


15% 13%

23%

50%

8%

16%

31%

45%

0%

25%

50%

Not yetadopted

In processof adopting

Adopted, inprocess of replacing

Adopted, nochanges planned

Commercial Loan Origination Commercial Loan Monitoring

Strong interest in replacing / adopting lending platforms

n = 47 (CLO); 48 (CLM)


Commercial loan technology state at global banks Percentage of respondents, 2014


10%

15%

31%

28%

10%

5%

9%

19%

30%

21%

14%

7%

0% 10% 20% 30% 40%

Financial return on investment

Functionality

Process improvement

Competitive advantage

Ongoing costs and maintenance

Enhancement of Client Value

Commercial Loan Monitoring Commercial Loan Origination

Value drivers for investments are process improvement and competitive advantage

n = 39 (CLO); 43 (CLM)


Primary value of commercial lending technology Percentage of respondents, 2014


Survey question

How are you investing

in commercial lending?

a) New or upgrading commercial lending systems

b) Consultative changes to the process

c) Enhanced analytics

d) Improving / expanding data sets

e) Other

35 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 35 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

Take steps to view risk by individual

factors, e.g., duration, convexity or yield

to maturity

Aggregate those views into a portfolio

level to better understand and control the

composition in order to optimize returns

Invest and stay focused on technology

that can enhance decisioning, delivery

and risk management

Call to action


For additional information, please contact:

[email protected] | @mikehorrocks

Hear the latest from Vision 2014

in the Daily Roundup:

www.experian.com/vision/blog

@ExperianVision | #vision2014

Follow us on Twitter


Visit the Experian Expert Bar to learn more about

the topics and products covered in this presentation.

Date post:	06-May-2015
Category:	Economy & Finance
Upload:	experian
View:	152 times
Download:	0 times

Vision 2014: The New World of Commercial Lending

Economy & Finance