Assignment 1 - CREDIT FILE REJECTIONS

PART 1 – NEEDS ASSESSMENT

INTRODUCTION:
In my current client (the Bank XYZ) when a small company - client or potential client – requests a product that implies credit risk, the branch must submit a file with some documents (internally called Credit File) to the Centralized Credit Department (CCD) at Headquarters to get the approval for the operation.

Given that the Credit Officers must evaluate the credit risk involved, it is critical that this credit file should contain the appropriate information. Insufficient or excessive information has a direct impact on the time the CCD takes to approve the transaction.

A credit file that has incomplete, outdated, insufficient information is sent back to the branch to either complete or update the information and then has to be returned to CCD

It takes 2-3 business days (depending on the location of the branch) for the file to reach the CCD.

Usually, if the file has excess information it is not returned but this circumstance delays the decision-making process forcing the credit officer to dive in the information to find what he/she needs. The analysis performed by the CCD takes 10-15 business days.

Consequently, this delay in the approval process has an impact on the response time (promised to the client by the branches, affecting the perception of customer service.

PROBLEM:

The Centralized Credit Department (CCD) has detected that approximately 50% of the credit files submitted by the branches has incomplete, outdated insufficient or even redundant, useless information for credit-related decisions.

The challenge is to figure out why the sales force officers (SFO) at the branches are not sending the appropriate information to the CCD, and how to facilitate getting the CCD the information necessary to respond to the branches in due time.

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AUDIENCE:

  • 300 SFOs, located in 300 branches.
  • Averageseniority in the bank: 36 months
  • Average seniority in the position: 18 months.
  • 30% of the officers had some bank experience prior to joining Bank XYZ and all of them are computer-literate.
  • All of them have completed high school, 49% of them have a university degree, and 30% are currently undergraduate students.
  • All of them have participated in an initial 2-week training program for their current position.

SOURCES:
The following sources can be utilized to gain information about the problem:

  • Interviews with:

­CCD Credit Officers

­3 SFOs with more and 3 with less seniority in the position

  • Direct observation of several SFOs preparing the credit file and several CCD Credit Officers studying the credit file and carrying out the credit feasibility analysis.
  • Extantdata:
  • Statistics (% of rejection, causes of rejection, period elapsed between the date the customer requested the product and the date the customer received an answer) during the previous 6 months ranked by branch
  • Results of the most recent Customer Satisfaction Survey (conducted by the Bank)
  • Benchmarks of other banks for the same or similar credit approval process

IDEALSTATE:

Reduce the rejection rate of credit files. The interviews with the CCD Credit Officers revealed they would like a reduction from 50% to 30% for the first six months, and from 30% to 10% for the following three-month period.

The CCD Credit Officers also mentioned that if the information file submitted were standardized, they could reduce the credit feasibility analysis by 1-2 days.

The interviews with SFOs indicated that not always is clear which information must be submitted, so they mentioned the need of support from the CCD in the credit file preparation process.

Benchmarks from two other banks revealed that it takes an average of 5-10 days to perform a similar credit approval process.

CURRENTSTATE:

Direct observation of 5 SFOs preparing the credit file has showed that some of them finish the process pretty close to the time the internal mail is picked up, so they don’t have enough time to review the information being sent.

The SFOs are concerned about complaints from customers when the answer from CCD isn’t on time.

Some SFOs with more seniority reported that sometimes they don’t understand the reasons for requesting some information, so they don’t pay enough attention to checking if the info is updated, or they just send photocopies instead of the original documents.

SFOs with less seniority reported that sometimes nobody communicates that some forms are no longer necessary.

Direct observation of 2 CCD Credit Officers performing the credit feasibility analysis confirms that the quality, order and accuracy of the information play a critical role in the effectiveness of the analysis.

Barriers / Recommendations
DATA ACCURACY
  • SFOs are not sure about the information to be included in the credit file
  • SFOs don’t understand why each document is requested
  • CCD prefer a standardized credit file
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  • Develop a training activity to review how to prepare an accurate new standardized credit file (instruction)
  • Design a checklist (job aid) indicating:
­Type of Info
­Photocopy / Original or both
­Most recent date
­Order in which info must be filed
OWNERSHIP OF THE RESULT
  • SFOs are not fully aware about the importance of a credit file properly prepared
/
  • Use the training activity to explain the implications of a poorly done credit file (instruction)
  • Include the credit file rejection rate as a part of the SFO annual performance evaluation, rewarding less rejections (incentive)

SUPPORTING SFO´S TASKS
  • SFOs don’t have enough time to review the accuracy of credit file
  • SFOs with less seniority tend to make more mistakes
  • SFOs reported lack of support from CCD
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  • Finish the credit file at least two hours prior to the internal mail departure (environment)
  • Perform a peer review of the credit file (environment)
  • Create a hot line in the CCD to answer SFO inquiries prior to or during the process of preparing the credit file. (environment)

INITIAL LIST OF PERFORMANCES:

Sub goal / Behavior / Type of behavior
Understand general credit aspects / State why the credit approval circuit is important for the Bank XYZ business. / Remember principles
Identify which documents show relevant information to take credit approval decisions / Remember concept
Review the Bank XYZ credit approval circuit / Identify the areas or departments involved in the credit approval circuit / Remember fact
Describe how these areas interact among each other describing responsibilities of each one / Remember process
State the average timetaken by each part of the credit approval circuit / Remember fact
Understand the NEW standardized credit file (NSCF) / List the main 5 sections of the NSCF / Remember fact
State two advantages of the NSCF over the old one / Apply concept
Given current client description, correctly identify at least 4 documents that need to be included in the NSCF but that don’t need to be requested to the client because they are already in the branch from the sale of previous products / Apply principles
Prepare a NSCF / Correctly assemble a NSCF using an ad hoc job aid / Apply Procedures
Given an already assembled NSCF correctly detect at least 4 possible causes of rejection / Remember Procedure

CONSOLIDATED LIST OF PERFORMANCES:

The SFOs will be able to:

  • State why the credit approval circuit is important for the Bank XYZ business
  • Identified documents, areas and time involved in the credit approval circuit
  • List the main 5 sections of the NSCF
  • Identify at least 2 differences/advantages between the NSCF over the old one
  • Correctly assemble a NSCF
  • Given an already assembled NSCF, correctly detect the possible causes of rejection

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