Improving loan officer productivity

RMA Journal, The, June, 2002 by Terry W. Anderson, J. Kempton Shields, II, Kathryn E. Tusler

How often have you taken part in or overheard conversations that touch on the weighty issue of loan officer productivity? This concern for both lenders and managers has not diminished since this article was first published. These authors conducted an informal survey of their colleagues and discovered some very real examples of techniques to improve productivity on several levels. As always, much of this could have been said yesterday but was, in fact, said a dozen years ago.

The atmosphere today in banking is more competitive than ever; margins are tighter; the competition is tougher. The result is that many lending institutions have changed or enhanced the traditional role of the commercial lender so that now he or she is responsible for not only making loans but also for acquiring and developing profitable customer relationships by hooking other business products.

Changing Roles

This change in roles has resulted in myriad new titles to describe that position--from commercial account officer to customer relationship manager. For ease of reference, we use the terms account officer, loan officer, and lender throughout this article. Despite these well-thought-out changes in roles, frustration has increased about the internal workings behind the lending process. Internal processes need to be examined so that account officers can minimize the time spent on peripheral activities and concentrate on developing the customer base efficiently.

More than ever, the account officer is in need of efficient, productive systems to allow him or her to tackle the challenges of bringing additional business into the bank without harming existing customer relationships.

Information Gathered on Improving Productivity

RMA asked a group of bankers representing both the lending and support side of commercial lending to determine what, if anything, has been done about this issue. As we talked with bankers in various parts of the country, it became clear that many institutions have tried, and quite often discontinued, using productivity measurement techniques. The theory was that maintaining records on the number of calls made or other similar items was not really indicative of the quality of work performed or the resulting business for the bank. Conversations revealed that there is far greater interest in finding ideas on how to improve the productivity.

Back Office Staff

An interesting sidelight, which is also key to the lending process, was that the bank's back office staff could play a large role in improving productivity. Often, a perception builds either that the quality of support is inadequate or that back office staff are uncooperative or unable to handle their assignments competently. In fact, that usually is not the case.

But because of incomplete communication or insufficient training, the rapport between the lending and back office groups can deteriorate, which eventually results in inefficiencies for both groups. Although the issue of employee relations was not the point of our conversations, it was raised often enough to indicate a commonality in the problem, making it worthy of further consideration for any institution attempting to improve account officer productivity.

Variation in Techniques

Techniques to improve productivity vary greatly. Although our article provides specific examples, it is the nature of the technique that is important. By looking at the type of changes undertaken, an organization may be able to establish some efficient systems through simple changes.

Report consolidation. One institution required four separate memos--classification, delinquency, nonaccrual, and charge-off status--for the same customer. Each report, however, required such similar information as the customer's name, address, nature of business, note number, loan amount, terms, and repayment history. The bank decided to combine all four memos into one. The difference in the memo's use is simply indicated at the top, where a choice of purpose (delinquent, nonperforming, and so forth) is provided. The officer indicates the appropriate use or uses by a checkmark on the form and then distributes the memo based on the purpose(s).

Changing procedures. The support department at another institution automatically notified insurance agents one week prior to the expiration of a hazard insurance policy. If no response was received from the insurance agent within a few weeks, the account officer was notified by exception notice for proper follow-up. Although more than half the renewals were obtained without officer involvement, a significant quantity of work was generated for the officer on those policies not renewed. A solution was for support department personnel to prepare a second letter to the insurance agent in the same amount of time it took to prepare an exception form for the account officer. By generating the follow-up letter directly to the insurance company rather than involving the lender, the support department has enhanced lender productivity.