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Easing Lenders’ Growing Pains

Expansion can cause operational pain in addition to loan revenue gains. Outsourcing may offer a remedy.

In recent years, the commercial lending business has been good to banks. As financial institutions have seen increases in loan volume - some realizing 300 percent growth over a five-year period - the race has been on to implement automated solutions to speed up the application process.

While many banks are searching for innovative vendor solutions to update internal systems, others are staying ahead of the rapid growth in lending by teaming with service providers. Outsourcing to a third-party provider can offer banks a long-term solution for an array of commercial lending applications - without having to invest in in-house solutions. The arrangement can enable financial institutions to cut costs while remaining flexible with regard to new product offerings.

Wyomissing, Pa.-based Sovereign Bank ($58 billion in assets) began outsourcing its entire commercial loan data processing platform when it acquired part of Fleet-BankBoston's business in early 2000. With the influx of new business from Fleet-BankBoston, coupled with fundamental industry growth, the bank needed a solution to handle its 150 percent increase in loan volume. Its arrangement with Exton, Pa.-based Automated Financial Solutions (AFS) has allowed Sovereign Bank to migrate different loan types onto a single platform and eliminate redundant data entry after the origination of commercial loans.

Prior to divesting its business, Fleet-BankBoston had utilized AFS' technology for loan processing. When assuming Fleet-BankBoston's business, Sovereign decided to migrate its own lending system to the AFS platform. The choice was simple, according to Sal Rinaldi, the bank's executive vice president and managing director of administration, commercial markets group, because the loans that were divested from Fleet were, in fact, gathered on the AFS platform.

"It made the transition a little easier for us because the commercial loans that Fleet divested to us were managed on AFS," explains Rinaldi. "And as employees came over to Sovereign, it was a lot easier for them to understand the AFS system because they were already familiar with it," he continues.

"When you look back to 2000, Sovereign was emerging in the commercial banking markets with a far more dynamic product set than ever before," adds Bill Belekewicz, senior vice president and director of strategic planning, analysis and risk review, commercial lending, Sovereign Bank. "The AFS product gave us the ability to respond to this better than our existing platforms."

The industry needs to consider options such as outsourcing to pick up the pace at which it processes loans, especially in mortgage and commercial lending, according to Clayton Baker, a Phoenix-based partner in Accenture's financial services group. (Editor's Note: For analysis of trends in mortgage lending, look for "Leaders in Lending, Part II" in BS&T's April issue.) "Up front, there is an increase in adoption in utilization of processing tools," says Baker.

"Most banks are in the process of implementing - or already have - out-the-door engines that will do the deal, process the loan and assess the credit risk," Baker relates. "If every lender doesn't have that, I can promise they are working on it."

AFS president John Shain agrees. "With the economy picking up, banks are making major investments to make the process of commercial banking much more efficient," he asserts.

Sealing the Deal

According to Sovereign Bank's Belekewicz, the bank traditionally has relied on outsourcing for most of its technology services, so the financial institution was comfortable outsourcing its commercial lending platform. "The whole notion of being an outsourced [lending] environment was also appealing to us because that is the way we are structured here at the bank," he explains.

In addition, Sovereign Bank wanted a solution that could scale with its operations. "We wanted to support future growth by having an expandable platform," relates Belekewicz. As the bank's commercial lending business grew, Sovereign Bank needed a vendor that could grow with it. "We wanted to avoid the situation of outgrowing our technology, and we felt that AFS could grow with us," Belekewicz adds.

Finally, Sovereign was looking for a solution that would allow the bank to integrate its disparate loan portfolios on a single platform to promote operating efficiencies and cross-selling opportunities. "In 1999, we had many different portfolios on various platforms, and because of that our MIS was very fragmented," Belekewicz explains. "By leveraging the tools available from AFS, we have centralized our MIS capabilities." The consolidation also provides a better picture of the bank's customers, he adds.

A 'Tremendous Leap Forward'

Following the success of the AFS platform in consolidating its commercial loans on a single platform, Sovereign Bank now hopes to automate the loan process using AFS technology. "We are actively pursuing automation in all of our process flows," says Belekewicz. "In fact, we are scheduled to implement a system later this year for all of our business banking loans originated through our branches."

By the end of 2005, Sovereign intends to implement a straight-through commercial loan process to eliminate the need for redundant data entry. The end-to-end process, Business Banking Originations (BBO), will capture loan application information at the branches and pass it through the entire loan approval process without the need to manually retype information throughout each step, relates Belekewicz.

"We will be passing application information from the branch, to loan underwriting, to document preparation, to boarding onto our loan accounting system without any redundant keystrokes," explains Belekewicz. "It's a tremendous leap forward for us and will increase efficiencies dramatically," he adds. The new process will also improve data accuracy, Belekewicz notes.

In addition to streamlining its loan processing, Sovereign Bank plans to expand services that currently are offered in other areas of the bank to commercial lending customers. The bank currently has a Web-based system called Interactive Reporting and Initiation Service (IRIS) that provides global Internet access to deposit and cash management activity for all customers, according to Belekewicz. "We are looking to expand that out to our commercial loan customers to provide access to their loan accounts through IRIS," he says.

In embracing automation, Sovereign Bank has managed the dramatic growth in its lending business. The bank nearly tripled the value of its loan portfolio in four years, according to Belekewicz, who says Sovereign Bank will continue to leverage technology to improve processing and customer service.

"If you look back to the end of 1999, we had commercial loan outstandings of $4.4 billion dollars," Belekewicz says. "By the third quarter of 2004, we were over $13.0 billion dollars as a result of strong core growth and merger and acquisition activity."

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