A User’s Guideto
N-Abler GradingBest Practices
Today’s Environment
Stakeholder Demands
Pressureson Profits
Doing MoreWith Less
Boards, Regulators and other stakeholders are demandingmore reporting, more compliance and more analysis
Cost of compliance, a sluggish economy and creeping collectioncosts all are impacting the bottom line of most Lenders
Lenders everywhere are looking for ways to maximize efficienciesand improve business without having to put out material dollars on expensive system upgrades
N-AblerGrading
Solutions
The N-Abler Grading helps Lenders by:bringing in unique reporting approachesdelivering services on an as needed basis providing independent assessments that can be
incorporated into the overall credit risk management process
The N-Abler has multiple applications, today we will look at four of the more important functions:
the efficiencies gradings can bring to collections workways the gradings can help maximize a borrower
basehow the gradings can help maximize returns on
capitalthe value of the extended reporting and analysis
Understanding
the Gradings
Each N-Abler grade carries a score of 0.0 to 5.05.0 represents the highest score0.0 being the weakest scoregrades of 3.5 or higher are generally considered
strong credits by most lenders
Each N-Abler grade provides 2 benchmarks the credit grade provides the indicator of borrower’s
credit profilethe security grade is the indicator of strength of
underlying securitygrading structures between different loan classes are
similar to allow cross loan-type comparisons
GradingScores
TwoBenchmarks
Understanding
the Gradings
N-Abler grades do not solely rely on credit scores and appraisal values:
N-Abler grades take into key credit and economic factors that also effect grading values
Factors such as the borrower’s reliance on the underlying assets and asset disposal
options arealso assessed
The combined views provided by the two benchmarks give a clearer picture of loan and how it should be managed:
A strong grade from one benchmark can, in part, mitigate a weakness in the other
Strengths and weakness in each benchmark can focus loan management and collections activities
EconomicFactors
Used inTandem
Gradings andCollections
Using the grades as indicators can better manage the realization processat the earliest possible stage:
Where there are consistently strong security grades ensure a part of your collection team is an active realization/reseller group or has a third party realization group it contracts out to
Security grades take in more factors than current market values – if a high appraisal value comes in where there is a weak security grade - investigate
Using the grades can focus staff efforts to where they candeliver better results
A loan has a weak credit grade but a very strong security grademay not support a protracted collection negotiation – focus staff onsecuring and disposing of the asset
Tie grades to staff seniority – lowest grades should go directly to best collectors. Don’t pass on accounts with stronger grades that can be handed by more junior staff
Staff Efficiency
Default Realization
Gradings andCollections
On going monitoring of gradings provides in-depth risk assessments and gives Management indicators of future resource needs:
Where a negative market event occurs the grades can provide advance indicators of loans that will require additional monitoring and administration
Correct developing negative grading trends by coaching credit underwriters to avoid them in future
FlaggingFuture Issues
Gradings andCustomer Relations
Reviewing grades should be a preliminary step to an annual reviewis the borrower’s risk satisfactory for the revenues generatedfor strong customers you want to retain put flags in place to
move early to reduce the risk the borrower will shop elsewhere
Grades can differ by loan type. Don’t assume a strong borrower forone loan class will be equally as strong in another
N-Abler security grade will help identify risks between different loans from a single borrower
Loan level grading produces a unique assessment point to compare a single loan against all other loans in the same portfolio
while a loan may pass general acceptance guidelines grading can identify those weaker or stronger than others in the pool
CustomerRetention
PickingPreferredBusiness
PortfolioFocus
Gradings andRevenues
Risk/ReturnAnalysis
Better CapitalDeployment
PortfolioRebalancing
Grades can show where the max risk/returns are found in a portfolio grades often reflect the Lender’s best returns come from mid-range risks:
ensure overall portfolio returns are not limited because of excessive focus on low risk / low return loans
Grades makes the decision process to sell limited pools of loanseasier and more efficient:
grades quickly identify excessive concentrations of high risk or low return loans in a portfolio
grades can accelerate the internal analysis process where loan sales are being considered
Grades can provide a quick-view indication of whether returns arein line with the underlying loan risk:
the simple reality is that higher risk loans should come with higher interest rates not enough Lenders fully apply this rule when
dealing with consumer loans and mortgages
Gradings andReporting
Combining grades with other portfolio factors brings a new prospective to standard analysis
compare risk grading across geographic disbursements to identify weaker locations that should be avoided
Once initial grading has been completed targets can be set to improve future results
set and track average security grading within a portfolio as support for regulatory reporting
set and track lower grades to assess the impact of collections costs
Cross-RiskAnalysis
SettingRisk
Targets
Gradings andReporting
Identifying consistently strong grades can lead to new businessacquisition strategies:
match risk grades to borrower industries to spot previously unidentified marketing opportunities
strong security grades concentrated in geographic locations can focus new mortgage selling activities
Grades can be used to assess credit staffreview averaged grade results by credit officer to identify trends
or areas where coaching is suggested
OpportunityAnalysis
StaffAssessments
Thank You
For more information of the N-Abler and how loan level gradingcan improve your lending operations
please contact us anytime
www.n-bgroup.com