The Importance of Loan Categorization and Segmentation for Financial Institutions

loan categorizationLoans are the lifeblood of financial institutions. While a healthy loan portfolio is the primary source of an institution’s revenue, it’s also the most challenging to manage. To operate a successful lending division, institutions need to know where they are earning and where they incur costs. This requires sophisticated loan categorization, which enables staff to view—and report on—their loan portfolio in more meaningful ways. With JOHO OneSource™, it’s now possible to achieve greater insight into this critical information.

Standard Views are Inadequate

Most analytics methods offer fixed, standard loan portfolio views, but, in many instances, these are inadequate for providing management with a true “birds-eye” viewpoint. For example, a loan portfolio purchased from another institution might be profitable, but by using it as an entry point for growing your base of deposit account holders, you can maximize profitability several-fold. Software that isolates accounts according to criteria avoids wasting time and money approaching people who don’t match your ideal customer profile. This can be invaluable for institutions that are obligated to track and report acquired loans separately until their maturity.

Importance of Trending

Then there’s the concept of trending. It’s great to know you purchased a loan portfolio that’s performing, but wouldn’t it be better if you could identify account holders in the portfolio who shifted their banking to your institution? If so, what are common criteria between those who moved and those who haven’t? This will enable you to understand trends affecting customers, and where to spend your marketing dollars.

What about market trends? When you know what your customers use loans for, you can apply business intelligence to marketing as well as new product development. If a notable percentage of your portfolio used loans of a certain value to purchase RVs during summer, for example, you might develop a new loan product aimed at RV buyers and target them with your promotions.

Those Difficult Questions

Financial boards, too, are typically populated with directors who ask difficult and diverse questions. These range from “What about those loans we bought two years ago? Did we get any new customers from them?” to “How much profit are we making from loans to RV buyers?” Regulatory reporting doesn’t allow for many of these distinctions in the data, and questions like this often give rise to frenzied efforts to track down numbers manually. In the time it takes to obtain, check and extrapolate the data, it’s already out of date!

Solutions that Serve Your Interests

Data warehousing using sophisticated technology offers the capability to “break out” different types of loans, pull reports based on almost any filtered criteria, and to discover the right questions to ask when segmenting the portfolio or performing other analytics tasks tailored for your business. It takes a particular type of data management, however, to deliver a solution that enables a financial institution’s executive team to create additional loan category views that serve the organization’s interests, rather than settling for standard reports delivered by their operational systems.

It’s time to ditch the spreadsheets and develop loan categorization and data warehousing systems that are commensurate with your performance in your market. Or, at least, with the way you want to perform!

Business Intelligence Geared Towards Your Unique Needs

business intelligenceRemember the days of point in time period ending management information, when you analyzed historical data to determine what was working and what needed change?

Well, that’s now been supplanted by interactive business intelligence (BI), which is basically the same thing, only using technological tools and systems to gather, store, access, and analyze data trended over time to help your financial institution’s leadership make strategic decisions. It also refers to the ability to identify a key piece of information and then click on it to drill to the detail behind it. While there are multiple tools available that do this, most of them are geared towards retail, manufacturing and other industries, and incorporate little about the banking environment.

BI’s Value in Banking

Business leaders in banking have very specific needs, which can’t be fulfilled by technology created for tracking physical inventory. Business intelligence offers value to banking executives when it’s able to deliver real-time reports on their loan portfolios, profitability of subsidiaries and acquisitions, and the performance of certain types of products. When your leadership team is reviewing the performance of a particular pool of loans they don’t want to be looking at information that’s two weeks out of date. That’s what happens, though, when all you have available is historical data, or your staff needs to collect information from multiple sources and compile what’s needed on spreadsheets. This is a costly and time-consuming ongoing business model.

The Current State of Affairs

The scenario above faces most banking executives today, however. Many organizations have holding companies with several different subsidiaries that make up the bank’s business.

Each subsidiary has its own income statement, assets, liabilities, etc., and in multiple instances compiling regulatory and management reports is a very manual process. When the leadership wants to know where things are at mid-month, waiting until 14 days after the month-end reports are consolidated doesn’t help much. They want to look at current information and drill directly to the details to understand what’s driving the change or anomaly.

What Banks Really Need

To get the true value of business intelligence, it’s paramount for everyone in your financial institution to be able to access the data they need at the time they need it. That means being able to generate and view trending information onscreen with a simple click. This is best accomplished using a central repository of up-to-date information and a browser-based reporting tool having the ability to drill down to the source details. Implementing an effective BI solution will also allow for more effective resource utilization as well.

The Good News

Fortunately for bank execs, there is now a solution to all of these issues. JOHO OneSource™ offers the financial industry a data warehouse solution that enables customized access for all bank employees that uses the same information from the same sources and provides access to only what the user needs to do their particular job.

Whether that’s a leadership view for identifying future product potential, or a teller view to provide good customer engagement, BI makes it possible for everyone in your organization to deliver exceptional service and contribute to the profitable growth of the institution.