In a commercial bank environment, lenders with commercial or small business lending responsibilities must quickly develop higher-level analytical thinking to accurately evaluate credit risk. Analysis experience develops naturally over a period of years, as lenders work with different types and sizes of businesses, different industries, and different economic conditions. However, mistakes in risk assessment made during that extensive learning period can be costly to the lender, the bank, and the customer. Credit losses, loss of client relationships, and attrition within the lending ranks are frequent consequences of this extended development period.
The Catch 22
Once a lender’s foundational training is complete, lenders face a Catch 22: their lack of experience limits them to analyzing smaller, simpler, lower-risk credits until they have acquired the experience to dependably make good decisions on larger credits. Yet this apprenticeship perpetuates that very lack of experience and ensures a long learning curve instead of a short one. If lenders do not have the opportunity to exercise their independent decision-making skills on more complex, higher-risk credit requests, how long will it take the lender to acquire the requisite experience and higher-level analytical thought processes?
Increasing the Speed of Ascent: the Case Study Learning Approach
Banks have tried many approaches to increase the speed of learning by pairing lenders with mentors and coaches who evaluate more complex credits, and by sending lenders who have completed their foundational training to workshops, seminars, or off-site universities to accelerate the pace at which they acquire those critical analytical skills.
Progressive banks have found an effective solution—using the case study method made popular by educational institutions like the Harvard Business School.
Workshops, seminars, and learning labs use a modified version of the business-school case analysis model to provide an active learning experience in a large group setting. If those methods include the analysis of cases of varying complexity—cases based on true-to-life scenarios or actual historical credit files—the lender’s acquisition of higher-level analytical skills can be accelerated. Lenders have an opportunity to work with a larger group to analyze a variety of opportunities and to make recommendations on credits that are similar to those they would encounter on the job.
Case Studies for Accelerated, Advanced Learning
Consider, then, using an advanced case study approach to extend and accelerate the lender’s ability to perform independently at a higher level of competence and confidence. Instead of pulling lenders away from the job for repeated seminars or workshops, provide additional opportunities for risk-free learning on the job. Using an online platform, present the lender with a variety of case experiences. By selecting from a library of cases, the bank provides the lender with credit situations from different industries, levels of business complexity, and economic periods. Lenders can access an assigned case and all of its component parts, record their analysis, and complete a credit action sheet or credit memorandum that echoes what they would complete at your organization for a real credit opportunity.
Once submitted, experts review their recommendations, along with those of other case participants, and incorporate feedback into a brief group session held via webinar. During the webinar, participants explore those aspects of the case identified by the expert as areas of insufficient or faulty analysis. Participants work in small groups, consider each other’s solutions, and arrive at a consensus credit solution. Each group’s solution is then presented back to the credit expert facilitating the group session. During these sessions, lenders reevaluate their approach to problem-solving and expand their ability to think broadly about credit solutions.
Experience Without Risk
Why does it work? Because it most closely replicates a lender’s task on the job: to independently perform and document an analysis, and advocate for a solution—but without the risks.
• Case assignments can be selected to match the types of customers and situations the lender will face at this organization—or to economic situations it may face in the future.
• Each lender must follow the bank’s process to perform a complete evaluation of the opportunity, complete the business, industry, and financial analysis, develop a credit decision and structure, and present an independently-formulated solution to the expert before discussing it with others.
• It removes the individual’s ability to hide behind the conclusions of a group.
• The expert who reviews their submission acts as loan committee, identifying any weaknesses in the evaluation or solution.
• By listening to the expert and their peers and exploring alternate solutions, they gain perspective, learn of a broader range of acceptable solutions, and gain confidence.
• Lenders are called on to address challenges to their positions by answering “What ifs” and “Why’s” to their recommendations, as they would before a loan committee.
By refining those solutions, they learn to make higher-quality lending decisions.
Case Study-Based Learning Outcomes
Through the use of two levels of case study exercises, your lenders develop more sophisticated analytical skills. They are exposed to a greater variety of situations and economic conditions than would be possible with job shadowing, mentoring, and apprenticeships. They also gain confidence using their decision-making skills, presenting their solutions and viewpoint, and incorporating feedback into the final solution.
This means banks can expect elevated job performance in the following ways:
• Improved ability to assess and manage credit risk for your bank leading to superior lending decisions.
• Enhance facility with applying multifaceted approaches in dealing with individual customers to determine strengths and weaknesses of each.
• Analytically constructing written defenses of their credit recommendations then cogently articulating their reasoning to their peers.
• Ready re-evaluation of lending recommendations resulting from peer feedback.
• Competent defense of challenges to their recommendations including to the “What ifs” and “Whys” presented about them.
• Advanced experience making credit decisions in multiple types of lending situations.
It is clear that the case study approach – when properly structured, supported with bank resources, and backed by bank senior management leads to substantially increased performance for financial institutions.