Elements of a Strong Credit Culture: Policies, Procedures, and Processes; and People

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Elements of a Strong Credit Culture: Policies, Procedure, and Processes; and People

In our previous blog post we discussed the first two important elements to building a strong credit culture, leadership and organizational structure. This blog discusses best practices for implementing the final two elements of a strong credit culture: policies, procedures and processes; and people.

Policies, Procedures, and Processes

Values and beliefs are transformed into policies, procedures and processes to govern daily activities. When credit cultures are weak, the staff may lack the confidence needed for effective credit judgement and risk management. This leads to responsibility for these decisions “falling up” to senior levels. Along with a strong credit culture comes the empowerment of line lenders by ingraining clear expectations for policies and processes.

Here are some best practices for creating effective policies, procedures and processes that will build your organization’s credit culture:

  • Clearly guide responsibilities in your loan policy statements.
  • Effective policy documents are concise—less than a dozen pages long, which ensures more people will read and embrace it.
  • Empower and authorize credit decision-making by line staff who are closest to the customer for better decisions and shorter response times.
  • Implement ongoing training for junior and experienced lenders to sustain performance.
  • Make your credit approval process efficient and unambiguous.
  • Dissent, when supported by sound reasoning, can help the organization avoid group-think when managing risk.
  • Consistently approach credit risk by beginning with a solid understanding of the customer.
  • Good customer relationships are strengthened through a deeper understanding of the borrower’s business and financial affairs.

People

The best measure of a strong credit culture is through its people. Though the other three elements are undeniably important, the daily, routine application of skills and judgement by individuals is tantamount for sustaining excellence in managing credit risk.

How can you ensure that your people will embrace your credit culture? Here are some of the best practices that Omega Performance has observed:

  • Set high standards and expectations for proficiency and performance.
  • Recognize the importance of early immersion for new hires.
  • Require credit staff at all levels to participate in periodic credit skills assessments.
  • Deploy training that attempts to develop consistent analytical skills and uses a cohesive strategy for credit decision making.
  • Create an environment where people feel a shared responsibility for credit risk, even if they only have a supporting role.
  • Have your people consistently applying skills with actual customers.
  • Invest in credit coaching and mentoring training so that your experienced staff is empowered to share its knowledge and experience with others.

If you missed the first half of this blog series in which we discussed building a strong credit culture through leadership and organizational structure, then you can read it here.

If you want more information and examples of actual banks that are applying these strategies to build a strong credit culture, then Download our white paper “Building a Strong Credit Culture

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