Jeff Judy

Jeff's Thoughts - April 22, 2015

Coping with the Credit Staffing Pinch

As I travel around the country in training and consulting activities, I keep hearing about the challenges of finding (and keeping) qualified commercial loan officers.

When the recession was in full force, staffing requirements were reduced. And nobody who had a job was likely to leave it in search of greener pastures.

Now the economy is showing improvement and unemployment is dropping. Employees are regaining a bit of mobility. And on top of that, many institutions see opportunities for growth in this improving economy, and they may be looking to add credit staff to take advantage of those opportunities.

But they are having trouble finding people with the skills and knowledge to manage credit risk and to work with business borrowers. And that leads them to turn to their existing staffs to find solutions.

In other words, many institutions are converting staff from other areas of the credit operations into commercial loan officers. They are, in essence, retrofitting mortgage or consumer credit staff, or even branch managers, to new roles in commercial credit.

Is this a technical problem? Is it just a matter of learning to use some new tools, to ask different questions?

I believe it is much more than that. I don't doubt for a minute that someone who has been successful dealing with mortgage products or auto loans or other credit products can master the process and the analytical tools of commercial lending.

The problem is, we often spend all our training and development time on this kind of technical training and fail to apply enough effort to deal with the fundamental differences in the nature of risk in different lines of credit business. I think we should devote more explicit and focused attention to giving these newly converted commercial loan officers a different mindset, a shift in thinking to go with the tweak in skills and knowledge.

We don't have the space here to go into all of the assumptions and habits that a converted loan officer has to overcome. Start with collateral. If you have a long history of dealing with auto loans and boat loans, or mortgage and home equity lending, you might assume that you understand collateral. But the collateral behind business credit is often much more complex. It may need more careful evaluation, and it is almost certainly a lot harder to liquidate if something goes awry.

And risk in consumer and mortgage lending is largely actuarial in nature. If enough applicants fit the statistical models, the level of defaults and losses is pretty predictable.

Commercial loans, by contrast, are not nearly as homogeneous. Every one has its unique features, it seems, and the behavior of management at the borrowing business is harder to assess and to anticipate. Even with tools like credit scoring, gathering the needed information and interpreting the analysis requires more judgment.

There's no doubt in my mind that applying additional training to move current employees from other credit areas into the commercial arena makes sense. I believe that developing staff who are already on board not only boosts morale, it takes advantage of their familiarity and support of the culture. Current employees already understand your values, your standards, your community, your goals, your general way of doing business.

But just adding a layer of technical knowledge is not enough to create a successful commercial loan officer, one who is going to make decisions and take actions that pay off for you in the long run. Invest in creating a true understanding of their new world of commercial lending, and an appreciation of the magnitude of the differences between risk management in that world versus their former credit environment.