For most banks and credit unions, the reporting of the lending process is very similar and in that it is focused on quantity measurements.
- Number of applications
- Number of loans closed
- Dollars of booked loans
- Top application channel
While very important, and indicators of success or challenge, they do not paint the entire picture.
We advocate that every lending function also track, report and monitor quality measurements. These are tell-tale signs of a healthy lending process:
- Approval ratio
- Ratio of booked loans to approved loans
- Average credit score
- Average dollar amount per booked loan
- Ratio of booked loans to new accounts
At this point you may be asking, “WHY” and that is a very legitimate question. To make it a completely impactful thought, let’s also ask “WHAT” do we do with this information.
The “WHY” is the easy part. Quality measurements provide a tool that helps you analyze the health of your lending process. As ratios dip or excel, as average loan balance increases or decreases, as the average credit score improves or declines — each completes the total picture of your lending.
Lower credit score? Maybe your marketing targeting is off.
Higher average balance? Perhaps your lending team is finally adopting the “best loan option” approach (worthy of its own blog discussion!)
Tracking and then keeping historical trends of the quality measurements will help guide your iterative training, marketing discussions and process improvement plans.
This brings us to the “WHAT” to do with the information.
First of all, share it with staff — and (this is important) share it in context to historical averages, so it can be properly framed and understood. Secondly, analyze the quality results compared with your marketing efforts, anecdotal staff comments, and member engagement. This will help you determine if a new trend is developing or if the results are non-cyclical and a true aberration.
Lastly, based on the outcomes, analyze your process and make process improvements to remove hurdles, clarify targeting, etc.
Balanced quantity and quality measurements provide you with clear vision into your lending process health.