Lending Analysis Software Spreading to Smaller Banks

Loan profitability software, which has found a home at many of the nation's biggest financial institutions, is slowly making its way to community banks.

The new software packages, which often run on inexpensive personal computers, automate the process of pricing a loan and tracking its profitability over time. The software also brings a loan applicant's entire relationship with the bank into sharp focus for the officer handling the loan.

With many of the worst commercial and real estate loans of the 1980s still plaguing the banking industry, improving productivity and profitability in the lightly automated lending area has become a high priority at many financial institutions.

Directing Limited Resources

And for community banks in particular, some experts view the systems as vital tools to ensure that limited resources are directed in the most profitable manner. "For a small or medium-size bank, equity is your scarcest resource, and you don't want to be laying it out if it's not making you money," said John Karr, a partner in the management consulting arm of Ernst & Young in New York.

While even the best lending software cannot guarantee that a bank will profit from a particular loan, it can at least pinpoint areas of poor performance before they mushroom into major losses for the bank, experts said.

Cost of Systems

Micro Resources Inc., Larkspur, Calif. and Crescendo Systems Inc., Overland Park, Kansas, are two of the most prominent providers of lending software to financial institutions with under $1 billion in assets.

The Micro Resources commercial lending relationship management program, known as Crisp, is a scaled-down version of the system installed at CoreStates Financial Corp., Philadelphia, Norwest Corp., Minneapolis, and others. The personal computer software is priced under $5,000.

A similar system from Crescendo, which targets slightly larger institutions, starts at about $20,000.

While these packages may appear very inexpensive on the surface, they do require a substantial amount of integration with a bank's host computer systems before they can reach their potential. Such integration projects can easily double the price of the software and sometimes take months to complete.

Once fully installed, however, bankers report the lending software begins to pay for itself very quickly. First National Bank of Bonita Springs, Fla., a $135 million-asset bank that recently expanded its lending focus to include small business and agricultural loans, credits the Micro Resources system with improving its net interest margins of 33 basis points.

When integrated with a bank's host system, typically a midrange computer such as International Business Machines Corp.'s AS/400 or System/38, the MRI software enables a personal computer to gather customer and product data from all areas of the bank.

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