Magazine article American Banker

Lending Analysis Software Spreading to Smaller Banks

Magazine article American Banker

Lending Analysis Software Spreading to Smaller Banks

Article excerpt

Lending Analysis Software Spreading to Smaller Banks

Loan profitability software, which has found a home at many of the nation's biggest financial institutions, is slowly making its way to community banks.

The new software packages, which often run on inexpensive personal computers, automate the process of pricing a loan and tracking its profitability over time. The software also brings a loan applicant's entire relationship with the bank into sharp focus for the officer handling the loan.

With many of the worst commercial and real estate loans of the 1980s still plaguing the banking industry, improving productivity and profitability in the lightly automated lending area has become a high priority at many financial institutions.

Directing Limited Resources

And for community banks in particular, some experts view the systems as vital tools to ensure that limited resources are directed in the most profitable manner. "For a small or medium-size bank, equity is your scarcest resource, and you don't want to be laying it out if it's not making you money," said John Karr, a partner in the management consulting arm of Ernst & Young in New York.

While even the best lending software cannot guarantee that a bank will profit from a particular loan, it can at least pinpoint areas of poor performance before they mushroom into major losses for the bank, experts said.

Cost of Systems

Micro Resources Inc., Larkspur, Calif. …

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