In order to properly manage their loan portfolio, financial institutions must have an accurate and effective system for loan portfolio analysis. For many organizations, this can be complicated due to lack of time, inaccurate or missing data, and lack of statistical know how.
Although results from loan portfolio analysis can vary, there are five key things financial institutions can do to improve the accuracy of their analytics:
Accurate data is a must for loan portfolio analysis. Data that is out of date, misreported, lacking key information or is not easily collected makes accurate analysis impossible. Take the following steps to improve your organization’s data integrity:
- Review current data to determine what information is currently being collected, where the data is being stored and how the data can be accessed.
- Identify what data points are necessary to perform a high quality, accurate, data analysis.
- Determine the best method for performing the analysis. If statistics is a forte, you might use regression analysis, or bayes theorem. On the other hand if you prefer to get back to making decisions, lending analysis software is best suited for this task.
Use Centralized Data
It is common for financial institutions to perform loan portfolio analysis for multiple reasons. One department may evaluate the portfolio to address collection issues. Another department may be looking for opportunities to offer additional products to clients. Without centralized data, each department is likely to be reviewing different data and interpreting that data in different ways.
Once data integrity is established, it is important that all employees use the same data set. This way, all analysis is performed on the same information which aligns the entire financial institution.
Use Web-based Analytics Tools
Many financial institutions use a series of spreadsheets and self created tools to perform data analysis. These process can generally take considerable time, resulting in decisions that are pushed down the road and missed lending opportunities. In some instances, institutions will contract with third party accountants to perform the analysis on their behalf. This is a step above trying to do it alone but because of the nature of sending your data away, waiting for the results, and then repeating the process every quarter this method can leave you with out of date data and inaccurate results. Items such as delinquencies, collateral values, charge-offs, and new production need to be analyzed at a minimum of once per month and constantly being monitored for their change.
Accuracy is improved when analytics can be performed quickly and be based on current data. High quality loan portfolio analysis software can perform thorough analysis on demand with nearly instantaneous results.
As you evaluate your options look for software that has a user friendly interface and that is able to provide data analysis across multiple departments.
Evaluate Customer Segments
Customer segmentation is a method of grouping individuals with similar circumstances. These groups of people are likely to have similar financial goals and objectives. For example, customers that have recently gotten married may be in the market for a home loan. Segmenting these customers allows financial organizations to tailor marketing efforts to each group’s specific needs.
In addition to providing marketing advantage, customer segmentation can also enhance collection efforts. Customer segmentation allows financial institutions to predict client behavior based on their situations and to react to those predictions in order to protect the bottom line.
Understand the Objectives
While loan analysis can be done to determine the portfolio’s worth or to evaluate the financial standing of the organization, analysis is typically used to get to the root cause of an issue. In order to provide accurate results, analysts must understand the nature of the concern. For example, if delinquencies are on the rise, analysts can focus closer on the variables that correlate with loans that have the potential to become delinquent. Without understanding the reason for the analysis, analysts can waste time and resources looking in the wrong direction.
Receive additional information on ways to improve the accuracy of your loan portfolio analysis by contacting the experts at Visible Equity today. Their team of highly qualified consultants can provide an analysis solution that will meet the specific needs of your financial institution.