BankAmerica Software Aims to Spot Wobbly Credit Lines

BankAmerica Corp. is installing software designed to monitor consumer lines of credit.

The software, written to predict customer behavior and help manage compliance with risk-adjusted capital requirements, is a response to banks' growing desire to catch deteriorating lines of credit before loans must be written off.

Typically, credit lines have not been scrutinized unless they were very high or in default.

Initially, BankAmerica will use the software in the consumer lending department for both secured and unsecured loans.

Under consideration is a second phase in which bank credit card lines would be brought onto the system.

The company hopes the software will let it review all lines of credit each year without hiring new employees in the consumer lending department. The system is supposed to separate out for San Francisco-based Bank of America the 10% of loans that the bank says ordinarily require human intervention.

The bank worked with American Management Systems of Arlington, Va., to develop the software. It uses a behavior scoring methodology to predict customer behavior.

A Bank of America spokesman declined to say whether the software would be used with credit lines of Security Pacific National Bank when the two institutions are merged.

$6 Billion Credit Exposure

Most banks now review fewer than 10% of their credit lines. Typically, BankAmerica would review only accounts that had fallen two months behind, or that were for $50,000 or more.

Over the next year, Bank of America will bring the all the lines of credit in its consumer lending portfolio onto the system. The company has a $6 billion credit exposure; about $4 billion has been drawn down.

"For the first time, we'll have the ability to review all the accounts," said James M. Petersohn, Bank of America vice president and manager of credit approval systems. "This will let us seek out very quickly those credit lines that are performing poorly.

"We should not be in the situation of having customers at the end of their credit limit suddenly" become chargeoffs.

Breaking New Ground

The software addresses the least-automated part of the bank's consumer lending process - the servicing of loans already granted.

"Credit-decision models have existed for 15 or 20 years on the origination side," said Peter DiGiammarino, vice president, finance industry, of American Management Systems.

"On the back end, we've had behavior scoring for determining the probability a customer will pay. But there's been no behavior scoring in the middle."

The software runs on an International Business Machines Corp. mainframe. Bank of America is testing the program using a test data base.

Predicting the Future

Accounts that fall into a "gray area" will be dealt with by customer service representatives.

The system uses a two-dimensional matrix to score each customer on the basis of behavior models developed by studying customer behavior.

Also used are credit bureau reports that reflect the behavior of Bank of America customers in dealings with other creditors.

The bank may use the scores to, for example, terminate the accounts of customers who fall into the weakest part of the matrix. At the least, the bank might not extend additional credit, Mr. Petersohn said.

Lines of credit are a relatively new product associated with credit card accounts. "Every product has its evolution," Mr. Petersohn said, "and we're now starting to recognize there is an opportunity for greater automation here."

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