As any lean six sigma practitioner will tell you, banks need to continuously define problems, measure against benchmarks, analyze, improve, and control their PPP Forgiveness application process. With a couple of thousand applications processed over the past five weeks, we are improving our process daily. In this article, we focus on the back end of our forgiveness manufacturing process and discuss SBA rejection rates. Getting an application rejected by the SBA adds 15 to 30 minutes of time to each application as bankers need to go back and solve defects.
Tag: Process Improvement
This week is the first week banks could potentially take Paycheck Protection Program Forgiveness applications. However, most banks are holding off as we do not have a final application, due out this week. WHEN you release your process merits some analysis, and in this article, we discuss 10 important considerations to decide on as you finalize your process.
When to Start Your Process
Since technology permeates everything we do, it is no surprise that engineering and development methodologies used in information technology (IT) diffuse into other areas of the bank. In the 1980’s the “waterfall” methodology went mainstream and management organized new products, processes, marketing campaigns and everything else around the concept. By 2000, “agile development” was all the rage. Now, in 2018, “DevOps” is the latest management development methodology.
A confluence of events recently has come together that has given us a master’s level course in bank disaster management and continuity planning. We observed a forty team law enforcement special weapons and tactics (SWAT) competition, was able to debrief several Texas banks after Hurricane Harvey and was at ground zero for Hurricane Irma. Banks are great at contingency planning in general with Florida and Texas banks usually among of the best.
Once a loan is booked, it needs to be reviewed over time for changes in credit. The problem is that many banks have only one type of commercial loan review. This standard review usually requires approximately eight hours of work from credit, loan administration, and management. When this effort is combined with data expense, the report is produced at a cost of just over $1,000 per credit. If you are one of these banks that only have one type of review, then the good news is that you can save a material cost anytime you want AND have better risk management.
The average bank approves approximately 85% of their loans that are submitted and turns down about 15%. Separately, this blog has highlighted the fact that an experienced community bank loan officer can predict bank approval about 80% of the time. This came up the other day, when a loan officer that sits on loan committee said that a specific loan is not likely to get approved in his opinion. While most of the staff was disheartened upon hearing this, we had to point out that statistically, this loan officer, no matter how experienced, is probably wrong.
When it comes to loan authority structure, six banks will do it six different ways. Loan authority is granted from a bank’s Board of Directors and gives each credit line position a certain amount of lending authority to approve the loan. While a front-line loan officer may have $500k in authority, their boss, the Chief Credit Officer, may have $5 million. How your bank handles loan approvals can have a profound influence on your bank’s performance. Get the loan approval process wrong and find that your bank is not only taking on too much risk, but driving up costs.
This isn’t a personal question, but it is a question that is growing in popularity. Knowing that efficiency is highly correlated to return, many banks, including us, are taking a look at their largest processes (like lending) and going to their Gemba to do it. With more banks adopting a Six Sigma approach and with banks cutting obvious costs, now is time to reassess your banks production of credit, deposits and services. If you want to know more about how understanding your gemba can help in banking, read on.
When we tell banks they need to get to a 35% efficiency ratio to be competitive in the future they look at us like we are crazier than an outhouse rat. Let’s set the branch debate aside (the largest functional cost area) as that is basically a philosophical argument. Let’s just look at your next largest functional cost – loan processing. We get challenged all the time by banks telling us they are “already at full capacity” and “we are already lean.” We point out that there is a difference between being at full capacity and being at optimal productivity.