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!