Secured lending areas in many banks are viewed with a mixture of distrust and disdain by the unsecured lenders.

The traditional banker sometimes sees the secured lender as a "bottom fisher," someone dealing with credits that are not bankworthy. Further, the business system for secured lending -- that is, how the job is segmented into functional responsibilities -- goes against the grain of many bankers.

Nonetheless, the organizational model employed by secured lenders can provide some tips on reengineering the entire bank. The secured lenders' segmented approach may offer

Mr. Wendel is a vice president at Mercer Management Consulting, New York. banks a way to tighten their marketing focus and increase the cross-selling of products.

Three Distinct Processes

Almost without exception, secured lenders in banks across the United States break up their job into three distinct processes: loan origination, credit underwriting, and account maintenance.

The starting point is the business development officer, who focuses almost exclusively on generating new loans. These officers are constantly in contact with brokers, accountants, investment bankers, and other intermediaries.

Depending on the bank, business development officers also work closely with unsecured lenders, who should be a key source of referrals. Compensation is largely driven by performance -- 25% or more is incentive-based.

When the transaction is identified, credit specialists then underwrite and structure the secured loans. Typically, business development officers have no credit authority. What they do possess, however, is a knowledge of what makes a deal acceptable to the market and to their own organizations. Therefore, they act as the first credit screen. They may, of course, write up an initial credit presentation, but after that point, the decision rests with the credit experts.

Contact Person for Borrower

Account maintenance and monitoring of secured loans is handled by another group of focused professionals. These account executives or account officers make certain that the monitoring procedures are working and that the customers' needs are being met. Once the loan is signed, the account executive becomes the main contact person for the borrower.

Contrast this infrastructure with banking's standard approach to unsecured lending.

At most banks, line officers perform multiple tasks: marketing, credit analysis, maintenance, and cross-selling. Tradition has more to do with this arrangement than customer needs.

Additionally, bankers express concern that borrowers will not accept the switch from a business development officer to an account executive. In some bankers' view, the only reason that this trade-off approach to account management works for secured lenders is that they are selling only one product, and it is to clients who may have few options.

Sits Well with Customers

In fact, customers are relatively at ease about their accounts being managed by someone other than the originator. Customers are primarily interested in seeing that their companies get good service from a lender. They also overwhelmingly prefer one focal point for problem resolution. As long as that contact person performs, the customer is happy.

Line bankers, not customers, offer the greatest resistance to this organizational change. The genuine concern that the client will feel alienated by a hand off of the relationship from the business development officer to the account executive can be prevented by introducing the account executive to the target early in the marketing cycle.

The resistance generated by line bankers who want substantial input into the credit process needs to be resolved within the bank. When the requirements for the banker to produce high return on equity and higher productivity in an increasingly competitive environment are linked directly to incentive compensation, very few lenders will continue to volunteer to be all things to all people.

Too Much for One Person

Expecting one person to juggle multiple roles and manage different internal and external constituencies may result in suboptimal bank performance in all areas of marketing, credit, and account maintenance. Building a high-yielding relationship, which should be every bank officer's primary concern, can become buried under the avalanche of phone calls and document processing.

Indications are that the loan market for the foreseeable future will be either flat or continue to decline. Improved productivity by the banker, higher account retention, and increased cross-selling will all be key factors in maintaining strong profits.

Adopting a tri-part account management approach with the business development officer, the account executive, and the credit specialist working together as a team offers the best chance to enhance productivity in a slow or no growth market.

Given that responsibility for an account is shared, increased productivity may, at first, appear to be an unlikely by-product.

Retaining Accounts

In fact, better productivity can result from a higher degree of job focus and match-up of individual expertise to responsibilities. Similarly, this organizational structure enhances the probability of account retention. Those who maintain the accounts understand how the bank works and, assisted by an administrator, can get issues resolved quickly and with reduced hassle for the customer.

The account executive serves a dual role in this structure. First, that executive can assure that the credit remains strong and the customer stays satisfied with the service provided. Second, the account executive can coordinate the cross-selling effort. The focus is on developing a deeper relationship with the customer.

Contributing to the productivity increase will be a change in personnel expenses.

Linking Compensation

A substantial portion of the business development officer's compensation, for example, can be linked to account profitability. The account executive can handle a significantly increased account load with the assistance of a lower-cost administrator. On an all-in basis, costs per account relationship should decline.

In some ways, it is ironic that a "break the mold" approach to account management has been developed by secured lenders, often viewed as outsiders within their own banks.

Nonetheless, the managers of unsecured lending areas should review what their brethren have done for secured lending and weigh its relevance to what they are also trying to accomplish -- namely, productivity and profit growth.

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