Academic journal article ABA Banking Journal

Giving Credit Where Credit Is Due

Academic journal article ABA Banking Journal

Giving Credit Where Credit Is Due

Article excerpt

Does anybody out there know how to make a good commercial loan anymore?

That's a question any reader of business news headlines might well ask. The answer, of course, is "yes. " In fact there are not only good loans being made, but lenders who do it consistently enough to command the respect of a tough audience-bank stock analysts.

Recently, ABA Banking Journal asked a selection of analysts which banks they consider to be good commercial credit managers out of the institutions they follow for their firms. Naturally, their choices are among the big banks-regionals and up. It seemed appropriate to focus on the larger banks since they're the ones that get the big headlines when they have loan problems. Clearly, many community banks would qualify as good commercial credit managers as well.

Armed with analysts' choices, we contacted a representative sample of them and asked them how they do it.

MATTER oF ATTiTuDE

Bankers interviewed emphasize that it's critical that lenders clearly understand not only their institutions' lending policies and procedures, but also their attitudes on risk. Setting the tone. "We're not adventuresome," says Alexander L. Kyman, president and chief operating officer of City National Bank, Beverly Hills, Calif. "We stick to very basic principles. Common sense never changes. And one of the basic things you learn is to know your customer. " Kyman, also president of the bank's $4.7 billion-assets holding company, City National Corp., says the institution stresses long-term, broad customer relationships, rather than opportunistic forays.

At $5.3 billion-assets Central Fidelity Banks, Inc., written credit policies that enunciate management's attitudes on lending are considered essential.

These broad statements of how the bank makes loans are inculcated into its loan officers, says Charles H. Rotert, executive vice-president and senior credit officer for the Richmond, Va.based holding company. "Because everybody buys into it, it works."

Similarly, at First Alabama Bancshares, Inc., establishment of a credit culture" starts at the very top of the organization, according to Cris Stone, executive vice-president. (While Stone is based in Birmingham, Ala., the company is officially headquartered in Montgomery.)

The $5.3 billion-assets two-bank holding company, the product of numerous mergers of small banks, does business in both Alabama and Florida. But throughout its system-run as approximately 30 business units-the attitude, says Stone, is uniform: Sound credit is priority one.

@'That comes ahead of profits, growth, and keeping ahead of other banks, " says Stone. "We beat that drum continuously. Personal connection. At First Wachovia Corp., Winston-Salem, N.C., personal responsibility of loan officers for the credits they originate is a key component of maintaining quality. Partially for this reason, $24 billion-assets First Wachovia has no workout unit. Lenders own" the loans they make-for good.

Some banks and consultants recommend against this policy, arguing that when a loan has gone bad, a lender may have an emotional bias that will cloud judgment. First Wachovia's Mickey W Dry, executive vice-president, chief credit officer and head of general loan administration, counters that it is preferable lenders know up front that they will remain responsible for their loans, versus a philosophy of, Well, if I have a problem, I'll just pass it along."' No 90-day wonders. Noel Peterson is senior vice-president-credit administration for NBD Bancorp's lead bank, National Bank of Detroit. He credits recruiting, training and development, and low turnover for NBD's respected credit record.

The $25-billion-assets company typically recruits from among graduates of respected business schools. Often this involves sending lenders who have been through the company's training back to their old campuses. Through the interviewing and hiring process, they maintain contact with candidates. …

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