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Study by PricewaterhouseCoopers
Efficiency of credit processes in German credit institutes
In the traditionally low-margin credit business, German banks are introducing more efficient workflows to lower costs. But despite their best efforts, most institutes are still a long way from "off-the-shelf credit", as auditing and consultancy firm PricewaterhouseCoopers (PwC) showed recently in its study "Efficiency of credit processes in German credit institutes".
German institutes are lagging far behind in terms of industrialising processes. Corporate clients at every second institute have to wait more than ten days for final credit approval. Even in comparatively uncomplicated transactions in private real estate financing, the average processing time is at least five days in 30% of banks. Many institutes do try to increase efficiency through task-based organisation of credit allocation processes and through outsourcing. But around one in two banks does not record their costs in the credit business systematically using key process data. "A large number of those polled cannot determine whether they achieve benefits through outsourcing or other organisational models. Thus the desired optimisation of credit processes is like flying blind," says Rainer Wilken, a PwC partner in the Financial Services Consulting department.
Banks rely on corporate business
Most institutes surveyed want to increase their credit business. However, the focuses are different. While the public institutes anticipate growth predominantly in consumer credit (86% of those surveyed) only 50% of private institutes and 44% of cooperative institutes say the same. By contrast, a clear majority of banks in these three categories are planning to expand corporate business.
Sales expansion
To reach their growth targets, those surveyed want to invest heavily in sales. While the institutes anticipate minimal increases in personnel over the next three years, there are definite shifts in the credit business. Accordingly, personnel in the consulting and sales divisions will rise by 3.9%, while the number in contract management will fall by 2.4%.
IT-based credit allocation gives time benefits
Consistent and appropriate IT support is essential to accelerate credit allocation and limit the time spent on administration. But still very few institutes use standard software that allows end-to-end credit processing from the application to possible problem-solving (workout). Of those surveyed, 57% now have a so-called "electronic credit file", and another 25% plan to introduce it. With this, credit can be called up and processed at any time and in any location. Delays owing to transport times and idle periods are a thing of the past.
Banks on the way to credit factories
In an effort to lower costs, many institutes are focussing on a more efficient deployment of staff through industrialisation: An employee is no longer responsible for the whole credit allocation process but works on individual, clearly defined tasks. Almost half of the institutes with a "generalist" work organisation needs 5 to 24 hours to process private real estate credit; 52% need at least one hour. None of the institutes managed it in less than an hour. A comparison of credit commitments overseen by each employee also shows the efficiency gains enjoyed by industrialised banks. So, employees at 11% of industrialised institutes process more than 1000 corporate loans on average - a rate that no non-industrialised banks can achieve.
Outsourcing does not always pay off
A good half of the institutes surveyed (55%) outsourced at least credit business sub-processes to external service providers. But outsourcing does not automatically lead to efficiency gains. Although it does help to shorten average processing times and thus reduce employee capacity, these gains are not completely reflected in the processing time. So some customers have to wait 10 days for their credit to be approved, regardless of whether the institute works with outsourcing (9%) or not (10%).
"Evidently many institutes underestimate the cost of preparation and monitoring involved in working with external service providers. In this context, the finding that one in every five banks checks its service providers" work only during an audit and not regularly is striking," says Wilken.
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