How Does Business Intelligence Help in Loan Servicing?
Loan servicing is an administrative aspect of a loan life cycle that goes through tons of touchpoints which needs strategic thinking to increase and maintain customer satisfaction, generate Cross-sell & Up–sell opportunities and assess Credit risk of their portfolio continuously.
Mortgage Meltdown Effect
The 2008 housing bubble crisis was one of the worst financial crises in a century. Loans were being issued without a proper risk assessment to many individuals and enterprises. This resulted in the default of large sums and many asset classes such as mortgages, and bonds saw a massive decline in value. A domino effect was in place that impacted the real estate, construction, banking and insurance sectors across the globe.
Since then, many reforms were bought in place to improve the risk assessment criteria. There was increased scrutiny and security when it came to issuing loans by banks and other lending institutions. This led to an increase in costs for lending institutions as they had additional regulations to adhere to before issuing a loan. These regulations are now being amended frequently keeping the economic situation in mind by the central banks of respective countries.
This is when, analytical practices started picking up for the Lending Institutions to keep a close watch on the Customer Portfolio, Product Portfolio, Delinquencies, Collections and Compliance. Today, analytics has become an integral part of Lending Business.
Challenges in Servicing Loans
1. Changing Regulations
Lending institutions need to keep updating their policies when any regulations from central authorities are changed. These regulations can be a bane for lending institutions as they can impact their cash flow, lending capacity and overall revenue generation and profitability. Apart from that, these regulations must be communicated to their borrowers to explain changes in interest rates, and payment terms, if any.
2. Lack of Clarity on Risks & Credit
Constantly changing economic scenario can impact borrowers’ repayment capabilities. On paper, they may have enough collateral and financial credibility to repay loans. However, unforeseen situations can lead to defaults on loan repayments. Therefore, the lending institution needs to be extra cautious while servicing the loans and observe payment patterns closely.
3. Operational Inefficiencies
Operational efficiency plays an important role in loan servicing as it directly affects customers satisfaction. Unsatisfied customers might transfer their loans to other Lending Institutions. That’s why KPI’s like; No. of loans serviced per servicing officer, servicing issues per branch etc. becomes critical and needs to be watched closely.
4. Cashflow Management
Repayment patterns of overall borrowers should give high level cash flow. This cash flow can be utilized in a proper way for funding new loans and expenses arising out of Loan Servicing. This will also help in utilizing credit lines appropriately. KPI’s to be monitored are: Monthly principal amount collected, Interest amount collected, Pre-payments done by borrowers etc.
Business Intelligence in Loan Servicing
Business Intelligence (BI) is a solution for lending institutions to tackle most of the above-mentioned challenges. Tracking number of loans issued, frequency of loan repayments, early warnings of credit risks, all of this and more can be monitored on BI solutions. Business Intelligence can be a powerful tool for the growth of the Lending Business.
Loan Servicing is a lengthiest duration between borrower and lending institutions. Defining and tracking Loan Servicing KPI’s helps in many ways.
Here are more details about the Loan Servicing KPI’s categorized in two different ways:
1. Loan Serving Metrics:
Below is a non-exhaustive list of loan servicing KPIs that are important to be tracked:
- Monthly average principal amount
- Monthly average interest collection
- Loan serviced per month
- The unit cost of loan servicing
- Servicing productivity
- Servicing issues per total loans serviced every month
- Cross-sell and up-sell opportunities
- Loans closed per employee per month
- Loan modification ratio (change in interest rates, change in payment terms etc.)
2. Servicing Metrics of Risk Department:
These are risk assessment KPIs that a lending institution tracks to manage their cash flows, bad debts and overall financial health. Below is a non-exhaustive list of metrics that a risk department tracks:
- Loss mitigation ratio
- Non-performing loan ratio
- Delinquent consumer loans per employee collection
- DPD metrics
- Borrower portfolio composition: Debt to Income ratio, Geographic spread, Credit score spread, Borrower demographics
Intellify’s Lending Analytics Solution
Intellify has built a Lending Analytics Solution which drives the decisions based on the data and enables data-driven decision making.
Here are some of the reasons why you should choose Intellify as your partner for Lending Analytics Solution:
Birds Eye View of Loan Servicing Metrics
Be it business development or risk management, Intellify’s lending analytics solutions give a comprehensive view of your institutions’ progress. From the number of loans being serviced to the DPD Analysis, everything can be monitored in a single dashboard.
Early Warning using missed payments
Missing or delaying on repayment cycles can be early warnings of default. Identifying such borrowers and constantly monitoring will help Lending Institutions to manage them properly. This can also be used as an opportunity to offer products like Loan Modification.
Constant Tracking of NPA
Non-Performing Assets (NPA) can become a burden for lending institutions. Keeping this in mind, our Business Intelligence solution will enable you to constantly track metrics of asset classes that can sound an alarm for your institution. Through this, your lending institution can safeguard itself and manage risks more appropriately.
We are leading experts in the industry providing business intelligence and data visualization solutions. We understand the concerns of lending institutions and our Lending Analytics solutions are designed in such a way that they can be implemented in just 2-4 weeks. If you would like to get in touch with our experts, click here.