Traditional organizational models assumed that the credit and sales functions in financial institutions could operate independently of one another. We have learned through experience that each plays a critical role in maintaining balance between risk and reward. To be successful, financial institutions must excel in both risk assessment and strong relationship management.

In today’s fast moving competitive environment, financial organizations that are unable to “bridge the gap” between risk and opportunity will continue their internal struggles and squander the moment to emerge among the winners.

For years, Omega Performance has worked with banks and credit unions to help build a synergistic relationship between the credit and sales functions. There is compelling evidence that assertive selling practices can actually enhance risk management, while effective, proactive risk management can enhance new business growth.

Although it was once commonplace for U.S. financial institutions to retain separation between their risk and origination groups, modern industry leaders have reduced or eliminated the traditional silos of risk management and sales. Four common organizational structures and actions include:

- A traditional structure in which sales and credit co-exist as two separate functions, but are tightly integrated through disciplined information exchange and interwoven selling and risk protocols.

- A centralized underwriting group holds decision-making authority but relies on input from originators and officers outside of underwriting. Integration is achieved by educating originators about credit analysis and developing collaborative procedures.

- A team structure in which individuals from both sales and credit risk function as part of the same team, responsible for originating and managing relationships. This is accomplished through cross-training and shared incentive programs.

- A relationship management structure in which individuals have authority and responsibility for both origination and risk management.

There is no single best solution—any of these structures can work. The key is the degree of balance and collaboration. What is the extent of functional separation between risk and sales in your financial institution? How can the activities of these functions be bridged more effectively to achieve greater success? What are you doing now to improve both risk management and sales growth?

To thrive in today’s credit world, your financial institution must become very good at collaborative teamwork involving different functional groups. Whether formally or informally structured, teams are a necessity today as information sources proliferate and the evaluation of data becomes more complex.

Winning organizations recognize the importance of training lenders to understand credit risk in order to meet the needs of both the customer and the financial institution. It is equally important for credit personnel to understand and support the sales process. A mutual understanding of each other’s goals and a culture of collaboration is the best way to acquire and retain long-term customers.

The post Bridging the Gap Between Credit and Sales appeared first on Omega Performance.

Our most recent Credit Skills Assessment public workshop, an industry standard in the APAC region, provided participants with a blended learning experience the included a self-paced, print-based learning program which was followed by active participation in an in-person interactive skills application workshop. The CSA workshop is typically delivered onsite in English; however, Indonesia’s first ever public CSA workshop, which took place in Jakarta, was facilitated in the Bahasa language by our master trainer, Pak Bonar Panjaitan — one of Indonesia’s highly regarded banking experts.

Upon successful completion of the CSA program, which includes garnering a passing score on the accompanying post-test, participants were awarded with the CSA certification. The Credit Skills Assessment is a comprehensive, industry leading credit training program that combines two of our flagship courses: FAL (Financial Accounting for Lenders) and CLB (Commercial Loans to Business). Organisations around the world use these programs to provide professionals with a strong foundation in the commercial lending at the individual, group, and organisational levels. The chief emphasis of the program is on understanding financial statements and accounting methods from a lender’s perspective, identification of credit risks associated with a commercial loan, the development of strategies to manage identified risks, and recommendation of appropriate loan structuring.

Congratulations to all the pioneering Jakartans who attended this workshop from Bank Mandiri, BNI, Bank BTPN, and Bank of Tokyo-Mitsubishi, for their active participation, which empowers them to improve loan portfolio quality for their respective banks.

The post Omega Performance Credit Skills Workshop Attended by Top Indonesian Bankers appeared first on Omega Performance.

Financial institutions around the world rely on the Omega Performance Learning Management System (LMS) for real-time access to self-paced e-learning courses, official pre and post program testing, and accurate reporting. To provide a stellar customer experience to thousands of organizations and individual learners, Richard Beaumont our Director of Learning Technology, must consistently look for ways to improve the utility and value of our systems, online and offline. Recognized as a best-practice leader in learning technology, Richard was recently invited to speak at the NetDimensions Next Steps 2014 user conference held on September 17 in Chicago, Illinois on the panel titled “From Small Data to Big Data: The Role of Analytics in Your Organization.”

In his presentation, Richard reviewed the advanced logical and technical configurations his team developed on the Omega Performance LMS, NetDimensions Learning. One of the highlights of the panel discussion was centered around unique advancements in progressing our capability to provide insightful and valuable reports to our customers. If you’re currently an Omega Performance customer, it’s likely that you’ve heard of these recent advancements that provide our client financial institutions with access to key training metrics and graphical reports such as: Training Progress, Learner Ranking, Group Results, and Industry Benchmarking.

The post Training Reporting and Analytics for Financial Institutions Featured at NetDimensions Next Steps 2014 appeared first on Omega Performance.

Inconsistent or unreliable approaches to credit analysis expose banks to unnecessary risk. This problem often occurs in bank mergers that combine diverse credit practices. It is compounded by hiring experienced lenders from other institutions that do not share a common methodology for analyzing credit risks.

Further, inefficiencies in analysis and the approval process often exist because of inappropriate analytical techniques or failure to understand the underlying reasons for the loan request. Using the right tools for the job is crucial.

A Best Practice Approach
Top-performing banks ensure consistent and effective credit decision-making by applying a systematic framework to thinking through a credit decision. The successful approach is more than a step-by-step checklist. Lenders need to think about risk analysis as a process that begins with identifying the opportunity, and continues through repayment analysis, loan management and risk monitoring.

High performing lenders translate these practices into institutional norms; the most successful institutions adhere consistently to specific patterns to perform credit analysis. The rigorous application of “decision strategy” provides management with the peace of mind of using a consistent framework to think about risk analysis as a comprehensive process.

Institutions recognized for sound credit practices typically employ a disciplined and systematic approach to assess risk, make sound credit decisions and manage credit relationships. Omega Performance’s Decision Strategy^TM is recognized as an industry standard for such analysis. The following steps provide analytical insights that inform and focus subsequent analysis on the highest priority risk factors:

Opportunity Assessment

Prospecting – Does the prospect match the lending institution’s profiles? If the prospect is a current customer, can the relationship be expanded?

Identify Opportunities – Review the prospect’s strategic objectives and financial structure. What immediate and long-term needs exist for credit or non-credit services?

Preliminary Assessment

Preliminary Assessment – What is the specific opportunity? Is the opportunity legal and within your institution’s policy? Are the terms logically related? Do the risks appear to be acceptable?

Identify Borrowing Cause – What caused the need to borrow? How long with the borrowed funds be needed?

Repayment Source Analysis

Industry and Business Risk Analysis – What trends and risks affect all companies in the borrower’s industry? What risks must the borrower manage successfully in order to repay the loan?

Financial Statement Analysis – What do the financial statements show about the borrower’s management of the business? What trends will influence the ability to repay?

Cash Flow Analysis and Projections – Will the business have sufficient cash to repay the loan in the proposed manner? Which risks will have the greatest impact on its ability to repay?

Loan Packaging

Summary and Recommendation – What are the major strengths and weaknesses of the loan situation? Should a loan be granted?

Loan Structuring and Negotiation – What are the appropriate facility, pricing, disbursement method, documentation, and covenants?

Loan Management

Loan Monitoring – Is the borrower performing as expected? What caused variations? What are the risks to repayment? How can you protect the institution’s position?

When Omega Performance’s Decision Strategy^TM is applied effectively, your lenders benefit from a consistent and reliable decision-making technique-increasing the likelihood of a high-quality portfolio.

The post Ensuring Consistent and Effective Credit Decision Making appeared first on Omega Performance.

Omega Performance is excited to announce that we upgraded our e-learning platform to feature a new, more-streamlined interface.

In response to our valuable client feedback, we’re simplifying the user experience and all of our e-learning courses will now be Javaless. A Javaless e-learning solution will eliminate any launch problems that our clients may have faced in the past..

In addition, all of the buttons on our interface (with the exception of “Next” and “Back”) will now appear at the top of the screen. To help our learners quickly access the tools they need most, the Resources, Glossary, Script, Bookmark, Email a Mentor, and Help buttons will all be located in one easily accessible location.

The system upgrade will not cause any disruption to our learners. They will be able to access their courses as they normally do, and their learning records will remain intact.

We’re excited about the streamlined functionality of our e-learning courses, and we think that you will be, too.

The post New Interface and Technology Upgrade for Omega Performance E-Learning Platform appeared first on Omega Performance.

In modern financial institutions, hiring skilled talent is important to ensure long-term success of the organization. However, since hiring people who are proficient and come with a certain set of requisite skill sets is not always possible, financial institutions have to invest time and money in useful training solutions to meet these challenges and match the global banking demand of a skilled workforce.

This training program must be effective, relevant, and planned out systematically. This means the training partner should have a structured, blended training program that enhances their employees’ knowledge and vital judgment skills that improve the efficiency of their day-to-day job.

The below infographic is based on post-training survey results and visually represents how bankers believe our training has affected their on-the-job performance.

Click on the image below to see an enlarged version

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In today’s competitive banking industry, it has become even more vital to build long-term customer relationships at banks across the globe. The modern customer may or may not be well-informed about the financial questions they need to ask, but it is critical for bankers to understand the unique situation of each customer, such as current financial needs and obligations, financial history, long-term financial goals, and business strategy if they happen to own one. Whether you are a sales person, relationship manager, branch manager, lender, underwriter, credit analyst, business banker, or a personal banker -you should be able to understand the true impact of credit risk. If you are unable to assess a customer’s needs, you will miss profitable opportunities, may end up providing loans that have a high risk of delinquency, ultimately placing the bank at risk.

CUSTOMERS DO NOT APPRECIATE A TYPICAL SALES PITCH

An important task is to gather the right information from your customers, and this will happen when you ask your customers the right questions, and have engaging conversations with them so you can ultimately provide targeted solutions to them. This is what a customer’s expectation is when he walks through that door at a bank for his first appointment with an associate. Customers want the sales person to communicate with them, beyond what is known as a regular practice of giving them several different product options to choose from. While the vast amount of choices can be assumed to make a customer feel empowered this is also the kind of information they can find online.

Furthermore, customers certainly do not want to feel like they are going through a typical ‘sales pitch’ and being ‘sold to.’ A highly competent sales person at a bank, aside from being courteous and professional, will constantly raise the bar in being able to measure risk involved, while suggesting a feasible, systematic and profitable plan of action. A mutually beneficial relationship will always go a long way, leading to the customer feeling invested in, and the bank increasing its credibility as well as the quality and size of its loan portfolios.

As reflected by Laura Beaver, a credit expert and Omega Performance trainer, “customer-facing bankers with a strong foundation in credit-centric sales skills are able to tell the story behind the numbers the first time around, increasing operational efficiency and improving credibility with the back office.” The article, The Smart Way to Turn Tellers into Sellers by Amercian Banker, discusses the basic hiring practices at banks, and how an organisation can improve the process.

ASK YOUR CUSTOMERS THE RIGHT QUESTIONS IN THE LIMITED TIME YOU HAVE

If you are a banker in a client facing role it is imperative that you continue to think of ways to add value to your client interactions by catering to their needs. By following best practices on how to strengthen your customer relationships, it is likely that a new customer who had a great initial customer experience will come back to diversify his or her portfolio with you. For a bank sales person to evaluate a customer’s requirements properly, he or she should know the type of information that is required, and be prepared to ask the right questions to uncover this information.

More specifically, bankers should confidently display judgment skills. This ability to weigh the various factors of a unique client situation and promptly deliver a customer-centric plan, will set apart the high level of customer service from competing banks. Bankers worldwide are usually provided with technical tools, customer management systems, and company processes that help them serve new and old clients – while the advantage of such tools cannot be diminished, what bankers sometimes fail to do, is adapt to their customer’s unique situation. This can result in the associate providing insufficient or even incorrect information to the customer, resulting in losing that customer to another banker who was able to sail through with his more adept bank sales skills.

To emphasize the same point, while employees will continue to learn on-the-job, to be able to maximize their sales, they need a more methodical training process. They need to learn how they can have collaborative conversations with their customers throughout the process, which will eventually define the volume and growth of a bank’s loan.

A METHODICAL SALES TRAINING PROCESS IS VITAL

While most financial institutions around the world provide their staff training in banking operations, compliance, regulatory systems and processes, and even product-specific training, what sets a high-performing bank aside from its competitors is when it recognizes the need to provide professional sales skills training to its customer-facing and frontline people. This boosts staff confidence, adopting a well-organized sales process that leads to a higher-quality customer acquisition model, and thereby increasing the bank value.

As a banker in today’s world, you should improve your sales skills, build your network, be able to overcome rejections and convert them into opportunities, adapt to a customer’s needs, and also prioritize your leads – thus increasing sales revenue. This training should be a continuous process where you are able to apply that learning in your day-to-day job, and test your skills by interacting and participating in real-life scenarios. Beyond learning sales skills, you must make an effort to retain and sustain these skills – thus, you should be able to discuss your understanding of conversations, and sales techniques with your manager, and set realistic goals for the overall development of your career as a successful banker.

OMEGA PERFORMANCE SALES SKILLS TRAINING SOLUTION

Omega Performance has recently launched the new Sales Skills curriculum to train customer-facing and frontline bank staff. The Sales Skills curriculum includes five courses, available in self-study e-learning or print formats, and instructor-led Skills Application Labs (SALs). These blended learning solutions equip bank associates and their managers with the skills they need to engage in collaborative conversations and deliver exceptional customer experiences.

The post Why Bankers Need Formal Sales Training To Increase Revenue appeared first on Omega Performance.

2014 was a big year at Omega Performance – key among notable highlights was an enterprise-wide digital transformation that included the roll out of the Skills Application Lab live training experience, expansion of our self-paced online course offering, and the deployment of the Training Analytics platform that provides self-service to near real-time reporting. On this road that finds us evolving our training to be more customer-centric, we paid special attention to the content we teach; and, more specifically, our clients’ desired business results.

One common denominator we identified across successful modern banks is the presence of a strong credit culture – this prompted us to dive a bit deeper into the subject, resulting in the publication of the white paper titled “Building a Strong Credit Culture.”

This white paper offers timely insights to financial institution leaders and managers – describing the four critical factors that typically result in successful credit cultures: 1) leadership 2) organizational structure 3) policies, procedures, and processes; and, 4) people.

Within “Building a Strong Credit Culture,” we provide answers and insights on the following questions:

• - Why is a strong credit culture important in banking today?
• - In what ways can leadership and management organize the various lending-related roles to have the maximum impact on credit culture?
• - What are the best practices when it comes to policies, procedures and processes for risk management?
• - What are the skill sets necessary for people who work in lending and credit risk management, and what kind of training is required to develop competent lending and risk management personnel?

As competition in the financial industry continues to heat up, a robust credit culture serves as a powerful differentiator, allowing lending institutions of all sizes to make savvy credit risk management decisions, develop high-quality loan portfolios and provide superior customer service.

“Today’s financial services organizations are facing the daunting task of not only creating the desired culture, but also sustaining it for years to come,” adds John Opiola, director of product development at Omega Performance. “As competition intensifies, posing new challenges for lending institutions worldwide, building a strong credit culture is a powerful strategy with a huge payoff. That’s why we believe that our new white paper will serve as a guide and a stepping stone to increased profitability, improved competitive advantage and smarter decisions for credit-focused institutions.”

The “Building a Strong Credit Culture” white paper can be read in its entirety at: http://www.omega-performance.com/lp/strongcreditculture_W/

The post White Paper: The Four Critical Factors That Influence a Strong Credit Culture appeared first on Omega Performance.

This is the first of a four-part blog series: The Four Elements of a Strong Credit Culture. You can find the other posts below. If they are not yet linked, they are upcoming.

1. Leadership (this article)
2. Organizational Structure
3. Policies, Procedures, and Processes
4. People

It has been six years since the peak of the Global Financial Crisis. In those six years, all financial institutions have been forced to re-examine the policies and processes that govern their management of risk. The leaders of some organizations have seized on this as an opportunity, by creating or re-invigorating the enterprise’s overall culture concerning risk.

The management of risk involved with making and managing loans is the focus of this paper. Credit risk is distinguished from risks related to trading activities or operations. This blog series describes specific and effective “best practices” in creating and sustaining a strong credit risk culture that have been observed by Omega Performance and examines why these practices contribute to success.

For decades management gurus have extolled importance of a “corporate culture.” Sharpening the focus on managing credit risk specifically within a financial institution, we might describe such a culture as: “An environment of shared values and beliefs about an organization’s approach to credit risk in which people behave according to accepted standards and principles when evaluating and discussing lending decisions.”

Leaders who seek to establish a strong credit culture have two challenges: first, creating the desired culture, and second, sustaining it. The most effective approaches combine four key elements: (1) leadership; (2) organizational structure; (3) policies, procedures and processes; and (4) people. Each of these critical aspects is discussed with examples. It is noteworthy that the most enlightened leaders seem to understand that while structure, policies and protocols are important, the performance of people is what ultimately drives and sustains a strong credit culture.

The importance of leadership in creating and maintaining a robust credit culture cannot be overestimated. Institutions that embody robust credit cultures are generally led be managers who openly embrace a core set of values about how credit risk is managed. The following examples illustrate the effect of senior management’s actions on the organization’s credit culture.

The CEO of one large bank clearly articulates the vision, value, and beliefs that guide that institution’s lending activities. Some of these values and beliefs had been in place prior to his tenure, reflecting the long-term nature of cultural evolution, and some have been recently instilled to better align daily lending practices with the institution’s overall strategic goals. One of this organization’s unwritten beliefs is that lenders are always encouraged to collaborate with other lenders or staff members on any credit decision. This creates synergy, which improves the quality of risk decisions, and it further ingrains behavioral expectations into daily activities as skills and experience are transferred among staff members.

It is important to note from the example above, that values and beliefs are often conveyed informally and may not need to be codified to be effective. It’s also important that the CEO has conveyed his ownership of these values and beliefs, even though he may not have originated them or others may be primarily responsible for implementing and executing them. Without cohesive guidance from the most senior levels, individual lenders may hesitate and miss viable lending opportunities, or worse may act independently and incur additional risk.

All senior executives of another large bank have collectively communicated the importance of balancing the drivers of growth (sales and marketing) with risk management (including credit, market, and operational risks)*. Recognizing the natural tension that exists between these roles, management has organized customer-facing staff in teams responsible for originating and managing business credit relationships. Incentives for teams are aligned with both growth and risk management activities, and training has become a normal expectation.

This bank is achieving a competitive advantage by elevating the quality of both sales and credit concurrently. As a result of more assertive selling efforts, there is a larger pipeline of viable lending opportunities, which enables the bank to grow while controlling credit risk. Incentives linked to managing credit risk have also motivated more efficient screening of prospects.

The senior management team of a progressive regional institution communicates its deeply-held belief in employing technology to improve efficiency, manage credit risk, and gain competitive advantage. In this organization’s credit culture, these values enable the use of technology to streamline the credit analysis process, efficiently share credit risk information among departments, and statistically manage overall portfolio risk on a variety of metrics. In addition to its focus on technology, management remains highly cognizant of the role that people play in managing credit risk.

Technology-based learning is used extensively to provide skill development for lending staff at all levels. This training, including online coursework and simulations, is delivered efficiently and cost-effectively, ensuring that all lenders are employing the same approaches, techniques and language in credit analysis. A critical cultural value that is accepted and understood by everyone in the organization is that no loan is to be granted without applying human judgment. This value keeps people in control of credit risk, and the investment in training sustains their control.

A closely-held group of affiliated community banks is outperforming its competitors, led by an executive team that constantly stresses a mission of balancing short-term objectives such as revenue growth and profitability with long-term goals of stability and market share growth. The impact of this message on the credit culture of the affiliated banks is to create a more uniform approach to assessing credit risk. It also allows lenders in each organization to accept a longer view of credit risk that aligns with management’s priority on effective loan relationship management. Leaders who espouse the importance of loan management while focusing only on short-term results risk creating confused and inconsistent behavior that will ultimately weaken the credit culture.

The post The First Element of a Strong Credit Culture: Leadership appeared first on Omega Performance.

This is the second of the four-part Strong Credit Culture blog series: The Four Elements of a Strong Credit Culture. You can find the other posts below. If they are not yet linked, they are still upcoming.

1. Leadership
2. Organizational Structure (this article)
3. Policies, Procedures, and Processes
4. People

The way that management organizes the various lending-related roles in the enterprise has a direct impact on its credit culture. When responsibilities are aligned with the vision and values of the organization, roles that are important to manage credit risk are given appropriate credibility and authority. This allows the people in these key roles to focus on job performance and not on turf battles.

The role of chief risk/credit officer is an integral part of the senior management team in many organizations that are concerned about enabling a strong institutional credit culture. What tends to be different among institutions is the span of authority carried by this position, particularly the influence the position may have on the lending and selling activities of line departments. In bank cultures that emphasize managing credit risk, we find, not surprisingly, many formal and informal protocols that require input from senior executives responsible for risk and credit.

Credit skills are viewed as fundamental to a successful career path in these organizations, and those who do not have a credit background are not as likely to ascend to senior positions. Ambitious employees volunteer for assignments in credit functions, including Credit Review and credit training, even when their primary career path may be in sales or non-credit products. They understand that experience gained in credit roles will positively impact their career prospects.

In order to gain efficiency and scale, many banks have centralized the loan underwriting function to a greater or lesser extent, allowing it to be separated from the function of originating and developing new business. A select group of banks have found that moving experienced loan officers from central underwriting and assigning them to teams or markets that are closer to the customer has improved response time, and more importantly improved the quality of credit decisions as critical information is more directly available to the lender.

The traditional role of Credit Review is to review the loan portfolio, identify potential problem loans, and monitor loan risk grades. In a select group of institutions that are distinguished for exceptional credit risk management, the role of Credit Review is shifted to reviewing and reporting to senior management on the strength of the credit process**. The function of monitoring the portfolio and identifying problem loans is considered the line’s responsibility. In some of these organizations, the status of Credit Review is elevated by direct reporting lines to the CEO or Board Audit Committee.

In the institutions with the most successfully ingrained credit cultures, credit training is considered a paramount activity. While the delivery of credit training in the structure of these organizations may fall under credit administration, line management, or human resources, there is no question about the support for it from senior management. The development of credit skills in credit-driven organizations is sponsored and championed by the chief credit officer and/or by line management. This commitment is regularly conveyed to trainees by the participation of senior lending and risk management executives at training events.

At one major regional bank, the focus on credit skill development has been unwavering for decades. Here, credit training is managed by an experienced line lender (typically VP level), who voluntarily rotates through that position for two to three years. The assignment is considered a high honor and is generally a stepping stone to promotion. This strategy serves to build and sustain the bank’s credit culture by renewing the energy around skill development every few years while also allowing line lenders to immerse themselves in and influence the organization’s credit culture.

At another regional institution, credit training is under the direct supervision of the chief credit officer. Members of her staff are primarily responsible for the content and delivery of credit training, and most importantly, for the performance of trainees. Because this group is held to a high standard as judged by the trainees’ performance on the job, there is a strong alignment of the skills developed in training with the actual needs of the line. In this structure, training professionals in human resources have substantial input regarding design and learning management, but decision-making related to content is exclusively in the purview of the credit management team.

**Specific issues and practices concerning processes are discussed in the next blog post, “Policies, Procedures, and Processes.”

The post The 2nd Element of a Strong Credit Culture: Organizational Structure appeared first on Omega Performance.

Professional development and training needs vary across financial organizations, but a culture of continuous and effective learning is important to enable consistent growth. By understanding the skill level of your talent, organizations can embrace emerging business opportunities and adapt to evolving industry needs.

Today, training may involve a range of tools and processes including an e-learning platform, on-site training, instructor-led events, and even long-standing traditional methods of studying print material. Regardless  of the method, for your employees to be able to suitably improve their job performance, and retain what they have learned long-term, it becomes inevitable to measure their performance during the entire training process. A poorly planned training program, which does not measure and track throughout the stages of learning, will not only eat into your budget and time, but will add little value to the training effectiveness of your employees.

“We test and train people to lend money more effectively. Our customers are very numbers driven and they want to find out what their lenders know and what they don’t know. A financial institution’s goal is to increase the knowledge of their lending staff, and we provide the right analytics and reports that helps our customers meet this training goal,” stated Richard Beaumont, Director- Learning Technologies.

To conclude, if you are a financial institution that is unable to identify company-wide skill gaps, you must invest in a training program that uses data, metrics and analyses the knowledge level of your lenders against that of others at similar organizations.

Our Training Effectiveness Benchmarking Reports below lay the foundation for financial institutions to assess and compare the quality of their credit professionals on an on-going basis, in a systematic way. Using industry benchmarks, institutions can apply a quantitative measurement to their staff’s skill level. The data in our reports demonstrate the skill improvement observed by Omega Performance at client organizations by comparing test results before and after training.

The results can be viewed for the following courses:

The post Using Big Data To Analyze Training Effectiveness appeared first on Omega Performance.

This is the third of the four-part Strong Credit Culture blog series: The Four Elements of a Strong Credit Culture. You can find the other posts below. If they are not yet linked, they are still upcoming.

1. Leadership
2. Organizational Structure
3. Policies, Procedures, and Processes (this article)
4. People

An institution’s policies, procedures and processes are the way that values and beliefs are transformed to govern daily activities. Institutions that lack a strong credit culture often end up making most credit decisions at or near the top of the organization. When vision and values are not effectively translated into practice by all levels in the organization, the staff tends to lack confidence in credit judgment and risk management, resulting in responsibility for these decisions “falling up” to senior levels. Organizations that are exceptional at managing credit risk seem to be able to balance centralized risk management with empowerment of line lenders by ingraining clear expectations in terms of their policies and processes.

During the past six years, most financial institutions have maintained or re-instituted centralized control of credit policy, generally under the watch of the chief risk or credit officer. All financial institutions now certainly have a written statement of credit policy, which describes the credit approval process (who is authorized to approve credits up to certain levels, what supporting signatures are required, how overrides and exceptions are dealt with); the loan grading system, policies on loan monitoring and reviews; documentation requirements, and so forth.

The most effective loan policy statements clearly guide responsibilities, for example: “All signatories on a credit bear individual accountability for the quality of that deal, regardless of the presence of other recommenders or approvers.” An effective policy document is also concise and not cumbersome; some of the best are fewer than a dozen pages long, making it more likely that everyone in the organization will read and embrace it. Many credit policy documents are unfortunately referred to as “manuals” comprising many dozens of pages. To put this in perspective, the United States Constitution, one of the most powerful culture-governing documents in the world, contains 4,400 words, the equivalent of approximately 18 single spaced pages of text.

Institutions that have a strong focus on managing credit risk tend to make credit decisions through a mixture of central credit administration authority and line authority with full accountability to both. In the most competitive organizations, management seeks to empower and authorize credit decision-making by line staff who are closest to the customer. Management believes that this strategy results in better informed decisions and shorter response times.

There seems to be a fine balance between empowering staff and maintaining appropriate oversight of credit risk. A common characteristic of these credit cultures is that credit approval authorities are carefully delegated, monitored and adjusted based on performance. These institutions carefully determine and convey the requirements for obtaining concurrence and approvals by more senior level authorities. Ongoing training for both junior and experienced lenders appears to be a critical factor in sustaining the performance of these credit-driven organizations.

The chief risk officer of one regional bank strongly believes that the credit approval process should be efficient and unambiguous, and this belief is reinforced by a clear statement of policies and practices. This bank avoids the term “procedures” when describing its credit policies, because management wants to encourage lenders to apply their judgment and not simply follow a script. Among the culturally-ingrained behaviors is the practice of asking and answering the following query: “In one sentence, describe what you believe the action should be on this credit, and explain why.”

Management of this bank believes that the organization’s credit culture is enhanced over the long-term by being open to dissenting opinions about credit decisions and by being receptive to constructive suggestions to improve the decision-making process. To be clear, deviating from policies is never tolerated, however the culture allows for opinions to be heard and differences in judgment are understandable and accepted as part of the process. In this way, management feels that dissent, which is always expected to be supported by reasoning, helps the organization avoid group-think when managing risk.

The process of credit analysis and decision making is culturally-driven and close to sacred at another well respected financial institution. Here, lenders consistently approach credit risk by beginning with a solid understanding of the customer, including factors that cause the need to borrow, business characteristics and strategies, industry issues and trends, and other qualitative factors. This is generally done before lenders dig deeply into the numbers. Management believes that this approach is critical to develop insights that improve quantitative analysis. The process also helps lenders identify potential deal-killing borrower issues at an early stage, resulting in more efficient decision-making. Finally, good customer relationships are strengthened through a deeper understanding of the borrower’s business and financial affairs.

The post The 3rd Element of a Strong Credit Culture: Policies, Procedures, and Processes appeared first on Omega Performance.

The Omega Performance Credit Skills Assessment (CSA) training program- a combination of two of our flagship courses – Financial Accounting for Lenders and Commercial Loans to Business is now formally accredited by the esteemed Chartered Banker Institute. The CSA training program is a benchmark in globally accepted credit skills that prepares lenders of all experience levels with industry best practices in critical skills. These credit skills are needed to successfully identify, assess, and structure profitable loans. The CSA program is suitable for all lending professionals who are responsible for managing credit risk within an organization.

In the competitive landscape that Asia-Pacific banks operate in, financial institutions that have offered our CSA training to their lending staff have noticed immediate and tangible results that further helped these organizations meet strategic business goals “Our CSA training program ensures a firm-footing for the entire lending organization, with specialized modules that contribute to high-quality loan portfolios,” commented Gil Madrid, Omega Performance’s Director of Sales, Asia-Pacific.

Advance your banking career with the Chartered Banker Institute accredited Credit Skills Assessment course

This accreditation carries global recognition that aspiring bankers benefit from as they advance their career in the banking industry. In addition, this partnership between Omega Performance and the Chartered Banker Institute will allow the CSA training program to count as 20 hours towards a banker’s Professional Diploma in banking within the Institute’s prerequisite structure, should banking professionals seek a higher qualification in their career path.

For more information on the Chartered Banker Institute, please visit http://www.charteredbanker.com/

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In a recent press release dated February 26, 2015 we announced that one of our flagship courses- Commercial Loans to Business (CLB) is now accredited by the Institute of Banking and Finance Singapore (IBF) under Level 2 of the IBF Standards.

IBF has set high standards for programs and courses to get accredited, which means any training partner will have to go through their rigorous evaluation process. The evaluation entails review of various relevant course documents as well as interviewing key personnel who have been involved in the planning, design, development and the assessment of the comprehensive training program. “Omega Performance looks forward to supporting the IBF Standards and we are honored to offer this course to our clients,” stated John Opiola, Curriculum Director of Omega Performance.

Raising the standard of banking professionals in the lending industry

Widely recognized as the industry’s leading training solution for developing commercial lending skills, our Commercial Loans to Business course is designed specifically to improve lender performance, increase decision-making efficiency, and create a more profitable, lower-risk loan portfolio. Participants who successfully complete the Commercial Loans to Business course will now have the opportunity to receive a formal certificate of achievement. This course is also eligible for funding under the IBF Standards Training Scheme (IBF-STS), subject to all eligibility criteria being met. Participants are advised to assess the suitability of the program and its relevance to participants’ business activities or job roles.

For more information on funding, IBF Certification and Continuing Professional Development (CPD) requirements, please visit www.ibf.org.sg

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This is the 4th post of the four-part Strong Credit Culture blog series: The Four Elements of a Strong Credit Culture. You can find the other posts below. If they are not yet linked, they are still upcoming.

1. Leadership
2. Organizational Structure
3. Policies, Procedures, and Processes
4. People (this article)

The measure of a strong culture is best reflected in the willing behavior of the people who live in it. While policies and process are undeniably important, management of the most highly-regarded institutions seem to agree that the daily, routine application of skills and judgment by individuals is tantamount for sustaining excellence in managing credit risk. The best performing organizations embrace enterprise-wide credit skill development as an integral part of the culture. High standards are set and expected to be met for proficiency and performance.

One of the consequences of the financial crisis has been that the pool of well-trained and experienced lenders has shrunk. Many large institutions have cut back on credit training programs that had previously provided training grounds for lenders who would have been hired away by other organizations. Many experienced lenders have retired or left the industry. As competition intensifies for commercial and small business relationships, many banks have renewed their efforts to hire and develop credit professionals.

Many organizations will implicitly seek to hire people who “fit” the desired or established culture. This is certainly true for hiring lenders and credit professionals in a financial institution, and some have attempted to make the requirement more explicit by statements like, “the ideal candidate will be able to honor and respect norms and standards of the bank’s established credit practices while exercising sound independent judgment about credit risk.”

Institutions with the strongest credit cultures recognize the importance of early immersion of new hires. For these organizations, training includes both skill-based content as well as orientation to the expected practices and informal routines of the credit culture. Recent studies have shown that training and development programs help motivate younger employees and enhance employee retention. In this way, credit training reduces turnover while enhancing individual credibility with regard to risk management.

One of the most effective management practices among credit-driven institutions is to use an objective assessment approach to periodically evaluate the skills and knowledge of staff engaged in lending activities. While these institutions are careful not to use the assessment for decisions about any individual’s career or disciplinary action, the results typically provide data that is useful to focus training on select groups and/or skill areas. These organizations seem to understand that credit training is not a one-size-fits-all endeavor.

A few exceptional organizations require that credit staff at all levels, including the chief credit officer, participate in a periodic credit skills assessment. This kind of action seems to clearly convey the institution’s conviction that certain competencies and standards are vital to the enterprise. Even experienced credit professionals are expected to keep their skills current.

When all lenders in the institution follow a consistent approach to analyzing credit risk, they may not all arrive at the same conclusion, but management can be assured that the analysis has been conducted in a rigorous and disciplined fashion and that judgments are based on uniform criteria. Institutions that exemplify effective credit management are most likely to deploy training that attempts to develop consistent analytical skills and uses a cohesive strategy for credit decision-making.

At organizations with deeply rooted consistent credit approaches, training of these approaches is closely aligned with the leadership message, organization structure, policies, and processes of the institution.

Top performing institutions tend to build on basic skills. Foundational credit skill development, now commonly delivered in the form of self-paced e-learning, ensures that all staff involved in the lending process understand fundamental credit risk issues and use a common “language” to communicate effectively with each other. This approach creates an environment where people feel a shared responsibility for credit risk, even though they may only have a supporting role.

Many leading organizations have leveraged their investment in foundational skill development by implementing a “blended” approach that emphasizes the application of skills. The basic skills and knowledge gained through eLearning are directly applied to specific lending opportunities in a dynamic group environment where analysis and recommendations are presented and discussed, creating a mutual learning experience.

For any credit culture to sustain its strength, the skills and knowledge gained through training must be translated to performance on the job. Organizations that achieve this connection and have people consistently applying skills with actual customers are maximizing their return on training investment.

Some of the most enlightened credit-focused institutions have engaged management and senior lenders in active coaching and mentoring activities. These select individuals are assigned to work with junior lenders on the job to help them transfer their skill and knowledge to actual performance.

It is often the case that senior lenders may have credit expertise but lack coaching and mentoring skills. Rather than ignore this gap, elite risk managers have chosen to develop this capability by investing in credit coaching and mentoring training specifically designed to help these people assist others. The benefits are far reaching and long-lived as key resources are empowered to share their knowledge and experience with others using techniques that further strengthen the credit culture.

Strong cultures embody rituals and ceremonies. Some organizations use recognition and rewards creatively to sustain their credit culture. In one institution, special recognition is given to effective credit relationship management, based on the quality of relationship planning and monitoring, detection of potential problems, and appropriate action taken.

Another institution balances its goals of long-term relationship building with risk management by rewarding both behaviors with incentives based on pre-established criteria. These risk-focused organizations recognize that people ultimately play the most important role in shaping the culture.

The post The 4th Element of a Strong Credit Culture: People appeared first on Omega Performance.

Professional development and training needs vary across financial organizations. Omega Performance Training Effectiveness Benchmarking Reports lay the foundation for financial institutions to assess and compare the quality of their credit professionals. Using training analytics data we are able to apply a quantitative measurement to the skill level of your staff.

Check out our latest infographic below.

Click the image below for an enlarged version.

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According to Forrester Research, among all businesses, banks have the highest correlation between customer experience and likelihood of switching businesses. Customer experience is the most common reason for opening and closing accounts, more so than fees, rates, locations and convenience. And among customers who switched banks during the past 12 months, the most common reason was a poor customer experience (JD Power & Associates).

Financial institutions understand how important this challenge is today.

Good customer experience requires a shared, bank-wide culture that puts the customer first. This means that staff are skilled in building relationships, listening to customer needs and positioning various products and services (cross-selling) when the time is right – key points we cover in our recently published white paper which you can download here.

This is why, in this digital age, more than 80% of banks rate the implementation of an integrated digital and physical customer experience as their top priority (Bain & Company).

Balancing an extremely competitive landscape, increased regulations and an ever-changing workforce, organizations continue to innovate to find easier ways for their customers to do business with them – some have implemented more digitized, customer-centric technologies and platforms, recognizing that customers want and need flexibility and choice in how to best interact with them – all while working to manage costs while ensuring profitable growth and customer retention. But, Harvard Business School professor, and editor of the Harvard Business Review Theodore Levitt once said: “Products are consumed, services are experienced.”

In an era where social and digital media enable consumers to immediately share these service experiences, customers who truly trust their bank will drive the most referrals and be more willing to consolidate their banking needs with a single financial services provider.

What this means is that interestingly, while your customers want choice, they do still crave the human connection. The kind of connection that brings distinct value and builds this trust; your sales team is the key to engaging in such high caliber customer conversations that explore unmet and unknown needs, provide the most relevant products and services – and in the process, strengthen the ‘personality’ of your brand and the customer relationship.

So the question is, how effective are your people at having these kinds of conversations?

The post Does Your Bank’s Sales Team Hold Effective Conversations? appeared first on Omega Performance.

Vietnam’s economy is projected to grow slightly faster in 2015 than in 2014. While the country faces tough challenges such as raising domestic demand, it is focused on strengthening exports to fuel productivity and expand employment. Improving GDP while keeping inflation in check will not be easy, but the Vietnamese government is taking certain measures—such as lowering interest rates and reducing the pool of nonperforming loans in the banking sector—which should result in stronger credit growth in 2015.

The State Bank of Vietnam (SBV)’s initiative in setting up the Vietnam Asset Management Company is already proving to be effective in reducing nonperforming loans. In mid-2014, the bank’s bad debt ratio was 4.17%. In a December 2014 Wall Street Journal interview, SBV Deputy Governor Nguyen Thi Hong said the goal is “to bring down the ratio of nonperforming loans to 3% of total loans by the end of 2015.” SBV plays a crucial role in helping domestic banks set aside assets to counter problematic loans. The policy is to keep the dong value stable.

Banks with larger cushion capital are sound not only because they may have a better internal credit culture and processes, but also because they meet the demand for high credit in a competitive marketplace. The Vietnamese government is targeting credit growth of 13%-15% in 2015. With an inflation rate of 5%, banks’ current interest rates are reasonable. In the Wall Street Journal interview, Ms. Hong said, “I think improved credit quality is among the reasons behind higher economic growth for this year. We have been funneling new loans to efficient production projects. One of our prominent achievements over the past year is having kept the foreign exchange and the gold markets stable.”

Some of the reasons for credit growth in the first quarter of 2015 included strong growth in the manufacturing sector (almost 9%, compared to 6% in previous years), loosening of credit packages that allowed banks to lend more freely, and lastly, the encouraging results seen in the country’s overall economic recovery.

A major trend throughout Asia in 2015 will be increased recruitment activity across various industries—and Vietnam is no exception. Vietnamese college graduates, like their peers in some other Asian countries, need to improve their critical competencies. In a 2014 Viet Nam News article on banking skills, Vo Tan Hoang Van, former vice-director at Ernst & Young, Vietnam (now general director of Sai Gon Commercial Bank), stated that his company had to retrain newly hired graduates, as some of them could not meet the demands of the workplace. For example, he said, “very few banking-finance students really grasp the full meanings of the Law on Credit Institutions.” An ongoing challenge for Vietnamese banks is hiring talent in the highly specialized fields of risk management, general management, and investment. As a result, some banks have hired skilled banking professionals from abroad to meet the domestic demand.

Vietnam is now gearing up for the challenges of the emerging Asian Economic Community (AEC) at the end of 2015, and the banking industry understands the importance of raising skill levels, developing talent, improving management bench strength, and creating a stronger credit risk culture. There is general optimism that despite the challenges ahead, Vietnam will become one of the rising stars amongst its AEC peers in the future.

“Vietnam has embarked upon its journey to promote a more competitive and progressive banking industry, at the heart of which is to build a sustainable credit risk culture. This challenge will require a significant investment in practical learning, skills enhancement, and management development. BTCI is committed to assist banks in bringing about the changes needed through international partnering for training on risk management, focusing on banks’ quest to develop a strong credit risk culture.” – Tony Jennings, Vice Chairman, Institute of Manpower, Banking & Finance – BTCI

“Benefited by public policy targeting the reduction of nonperforming loans and the maintenance of favorable inflation and interest rates, Vietnam’s banks are in a good position to grow their loan portfolios. More specifically, the goal is high quality credit growth: profitable loans that are low-risk. Beginning with a strong and clear message from leadership, bank employees will be empowered to play a key role in strengthening the bank’s credit culture, and as a result, improve customer experience and confidence. In this white paper, we introduce and provide examples of the four key elements that go into developing a strong credit culture – providing a reliable resource for credit professionals in Vietnam’s competitive banking industry.” – Lateef Abro, Director, Global Marketing, Omega Performance

The post Building a Strong Credit Culture in Vietnam appeared first on Omega Performance.

For financial institutions around the world it is more important than ever to ensure they are balancing asset growth while maintaining strong attention to the management of risk. This is being accomplished in successful banks around the world by focusing on the development of a strong credit culture that prioritizes risk management throughout the organisation. When it comes to supporting the development of a strong credit culture in India’s financial institutions, the Reserve Bank of India (RBI) enforces a preemptive approach as well as a regulated approach towards building a strong credit culture in India’s financial institutions. Further, the RBI has adopted measures to facilitate robust risk management and enhance corporate governance standards in the country—standards that saved the domestic economy from major adverse shocks of the last global financial crisis.

“Some risk reduction is taking place. The RBI’s human resources department is working on setting up a new certification system for supervisors. Also, a more structured and quantitative approach is being employed, based on a more intensive use of models. The U.S. Federal Reserve’s approach to the accreditation of bank-internal credit models is being used. New training programs are being devised in cooperation with the World Bank’s Financial Sector Development Program, as well as collaborative programs with other external agencies.” International Monetary Fund Country Report, March 11, 2015. “India: 2015 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for India”

While the RBI has set a strong foundation for risk management, India’s credit growth rate remains very low. As stated by the International Monetary Fund in a report published in March 2015, India’s credit growth is not only weak but highlights the feeble state of public sector bank balance sheets and an overall low appetite for bank credit, leading to unfavorable conditions for credit growth. Indian banks that take on best practices in enterprise-wide credit risk management are better prepared to identify and structure higher quality loans.

Omega Performance, a premier provider of credit training solutions for financial institutions worldwide, announces a release of this white paper titled “Building a Strong Credit Culture in India,” which offers crucial insights into the development and maintenance of an effective credit risk culture and explains its impact on long-term business growth and profitability. As competition in the financial industry continues to heat up, a robust credit culture serves as a powerful differentiator, allowing lending institutions of all sizes to make smart credit risk management decisions. Further, a strong credit culture plays a big role in reducing nonperforming loans, developing high-quality loan portfolios, and providing superior customer service.

“We are confident that financial professionals in India are going to benefit significantly from the strategies and suggestions outlined in this white paper,” says John Opiola, Curriculum Director at Omega Performance. “by presenting examples of how banks can implement strong credit culture principles, this white paper can serve as a foundational resource for financial institutions in India that are ready to embrace a strong credit culture under the new, pro-business government of Prime Minister Mr. Narendra Modi. This projected, dynamic economic growth and a vision to raise the standard of banking in India should help the country forge ahead as a major global economy.”

The post Building a Strong Credit Culture in India appeared first on Omega Performance.

We had recently published a blog post about our white paper – Building a Strong Credit Culture in India which not only discussed the various problems banks were facing globally that affected credit growth, but also emphasized what types of solutions these banks could adopt to solve these problems. The white paper also highlighted that a healthy and rising economy like India needed a positive credit growth to ensure smooth inflow of capital. However, in recent times, non-performing assets in India have become an imminent issue which has crippled the Indian economy making this credit growth slump badly.

Here is an article written by Jasrin Singh, our Director of Business Development in South Asia, who talks about the several reasons Indian banks possess such a high rate of NPAs. This article was featured on IIFL (formerly known as India Infoline Limited), a leading financial services company in India.

“Despite the increasing demand for consumer and commercial credit that entices banks with huge potential for growth, there are also the impending challenges that come with lending in a developing economy where data provided may not always be reliable. Deregulation of the financial system and more banking licenses means increased competition and a greater need to outperform competitors.” Read more on The growing non-performing asset problem in Indian banks: An intervention plan

Jasrin Singh is responsible for developing strong relationships with financial institutions in India, Pakistan, Bangladesh, and other surrounding regions, in need of risk management training utilizing Omega Performance’s proven, best-in-class credit training solutions.

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