Loan Processing
Loan processing (or loan processing ) is a department in the organizational structure of banks , building societies and insurance , which carries out loan servicing in the lending business.
General
Loan processing is functionally a sub-type of processing that performs the tasks of processing loans. In the banking, building society and insurance sector, lending requires a complex work process , the workflow of which requires a particularly high level of qualification on the part of employees ( loan officers ). Located in the working process created product of the loan is for the lender with a credit risk associated that one of the major risks of the banking business and therefore by the loan origination and credit analysis must be determined and minimized. Banking supervisory law therefore deals intensively with questions relating to loan processing.
Loan Processing Phases
In companies based on the division of labor , independent departments take on tasks such as financial accounting or reporting , so that the credit management process can be divided into the sub-sectors of credit checking, credit structuring, credit approval and credit monitoring.
Credit check
In new business, loan processing begins with the loan application and the loan documents submitted by the bank customer . Here, the loan processing are working means such as bank archives , credit software or manuals available. As part of the application service providing (ASP), the loan officers use specific software ( application service provider ) as the loan software . The content of the loan application is checked by the credit institutions as part of the credit check and checked for plausibility with their own information. The credit analysis has to determine the legally required risk parameters of default probability , default credit amount and default loss rate in accordance with the legal requirements of the Capital Adequacy Ordinance. These are reflected in credit scoring (private customers) or ratings (corporate customers). The loan amount and loan term must result in acceptable business indicators such as the level of indebtedness , debt service coverage or the interest burden ratio ( debt ratios ).
Credit structuring
With regard to the financing risk , the credit structure examines whether the type of credit desired by the customer is the right financing instrument and whether the proposed equity ratio is sufficient. In addition, it must be checked whether the customer's loan amount was not set too high or too low. Finally, the purpose of the loan must be clearly defined so that undesired misdirection during loan disbursement can be avoided. If the loan is allocated to a loan object , this must meet the requirements for loan collateral and ensure adequate security.
Credit approval
The collected information is condensed into a standardized loan template in the further work flow ("credit process") , which the decision-maker uses for his credit decision . If the decision is positive, the loan processing department converts the essential decision results into a loan agreement , which is composed of more or less comprehensive text modules . Based on the loan application, it contains the loan conditions ( covenants ) and disbursement requirements that the borrower must meet. The loan processing has the task of monitoring the borrower's compliance with the contractual agreements. In the case of earmarked loans, it must be checked whether the loan funds disbursed have been used for the agreed purpose (loan application control). When it comes to funding , credit control is a top priority.
Credit monitoring
The credit monitoring after loan disbursement has the task of creditworthiness of the borrower and the performance of existing credit guarantees by safety assessment permanently monitor. This review of the risk classification must be carried out annually (BTO 1.2 No. 6).
Banking regulatory law
Based organizational requirements for banks in the lending business are the minimum requirements for risk management (BA) in December 2012. The key principle for development of the lending business processes is thereafter the clear organizational separation of functions of the areas the market ( customer service / sales ) and back office (loan origination, credit analysis and credit processing ) up to and including the level of management (BTO 1.1 no. 1). This separation requires a credit decision consisting of two votes in favor from the front and back office areas. For credit decisions that are not to be classified as essential from a risk perspective (retail business), the institution can determine that only one vote is required (“non-risk-relevant credit transactions”; BTO 1.1 No. 4). In loan processing, credit institutions can therefore organize organizationally between the standardizable retail business and the less standardizable corporate financing. Volume business (particularly overdrafts , consumer loans and real estate financing ) has in the loan processing to a high degree of standardization, while the corporate finance ( investment loans , overdrafts , roll-over loans , Revolving loans or stand-by loans ) is characterized by high individuality.
According to BTO 1.2 No. 1, the credit institution has to set up processes for loan processing (loan approval and further loan processing), loan processing control, intensive support, problem loan processing and risk provisioning . The responsibility for their development and quality must lie outside the market area. According to BTO 1.2 No. 2, the institute has to formulate processing principles for the processes in the lending business, which are to be differentiated appropriately. This is usually done through work instructions . In accordance with BTO 1.2 No. 10, the institute must use standardized loan templates as far as this is possible and expedient in view of the respective types of business, whereby the design of the loan templates depends on the type, scope, complexity and risk content of the credit transactions.
As part of the loan processing, according to BTO 1.2.2 No. 1, it must be monitored whether the contractual agreements are being observed by the borrower. In the case of earmarked lending, a check must be made to see whether the funds on the date are used as agreed (loan use check).
Credit factory
In the banking industry, there is a tendency to no longer handle loan processing and / or decision-making itself, but to outsource it to so-called “ loan factories” that can work for several institutions. This reduces the vertical range of manufacture at the outsourcing institutes. In addition to companies already active in the market, other institutes are planning to set up their own credit factories. The outsourcing of loan processing to a credit factory is basically possible within the limits of Section 25b (1) KWG . The prerequisite for this is that appropriate precautions must be taken to avoid excessive additional risks . Outsourcing may not affect the regularity of these transactions and services or the business organization within the meaning of Section 25a (1) KWG. Furthermore, the overall responsibility of the managing directors of the outsourcing institution must be retained and their management and control options must not be impaired. If, in addition to technical loan processing, decision-making powers are also transferred from the outsourcing institute to the credit factory by way of representation , the outsourcing institute must specify precisely predictable and verifiable objective assessment and result-finding criteria with regard to the decision, so that the outsourcing company has no room for judgment . This ensures that the decision actually made by the credit factory is legally that of the outsourcing credit institution. The aim of outsourcing is to lower production costs (especially personnel costs ) in order to improve credit margins. It can also lead to faster processing times and shorter credit decisions.
The credit factory itself is a non - bank company to which credit institutions outsource credit processing. It does not conduct any banking business and therefore does not have a banking license and does not bear any credit risk ; this remains in the bank balance sheet of the outsourcing credit institution. In the interest of the institute placing the order, it takes over the processing of the credit business, from processing the credit application to creditworthiness check and disbursement to credit management. It also takes on IT services , risk management and risk controlling , bundles loans into securities ( securitization into asset-backed securities ) and sells them on the secondary market. The credit factory is able to leverage economies of scale by increasing the amount of credit .
Individual evidence
- ↑ Max Lüscher-Marty, Theory and Practice of Bank Loans , Volume 2, 2011, Chap. 1.09 No. 3.1
- ↑ BaFin circular 10/2012 (BA) of December 14, 2012, minimum requirements for risk management , reference number BA 54-FR 2210-2012 / 0002
- ↑ BaFin circular dated December 12, 2003, “Kreditfabriken” - regulatory framework and requirements ( memento of the original of April 25, 2016 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice.
- ↑ BaFin circular 11/2001 of December 6, 2001, outsourcing of areas to another company in accordance with Section 25a (2) KWG , No. 15
- ↑ Ingo Kipker / Michael Veil (eds.), Transaction Banking: strategies, organization, control instruments , 2003, p. 81
- ↑ Ingo Kipker / Michael Veil (eds.), Transaction Banking: strategies, organization, control instruments , 2003, p. 82
