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Developing the well rounded lender

4 steps to take, and a word on "typecasting"

With community banks' lending business picking up by most accounts, many banks are becoming more acutely aware that they are experiencing an actual or potential shortage of qualified commercial lenders. And they feel it. With razor-thin net interest margins there simply isn't much margin for error in underwriting and administering credit.

There's a phrase that my old mentor and boss at The Bank of New York, Charlie Fritscher, used to say to remind us "newbies" to stay on our toes: 

"Remember, in lending you have to be right 99% of the time,

as the remaining 1% is the loan loss reserve."

Where does a community bank go to hire an already trained lender? 

Raiding the competition is one way. A merger with another bank is another source. But are these the best options? Do you know what you're getting?  Have you vetted your target's lending credentials?

And how do you know that a new hiring prospect is not encumbered with a lot of bad habits learned along the way in another bank's credit culture?

Four facets to lending improvement

Each banker and bank must answer these questions in their own market and conditions. However, there are a few principles I'd suggest to ease your concerns and to-hopefully--lower the risks of making any significant personnel mistakes.

1. Be sure that all your credit people, line and staff, have specific and fundamental roles to play in the extension of credit.

If you want to develop analytical skills, be sure that there are built-in opportunities to work with the numbers in the loan underwriting process. Make credit underwriting a shared responsibility--and not just within the loan committee.

2. Make sure your loan policy is keeping up with the local market in terms of what the competition is offering and how your lenders are responding.

Nothing stands still these days and disconnects can be costly both in terms of deals missed and increased credit risk exposure. For years, banks have relied on their lending policies to be tutorial in nature. A policy manual should not be a procedures manual but it needs to be specific in the way it lays out the principles of what you expect credit underwriting to accomplish across the breadth of your credit product line.

3. Don't be skimpy with the training budget.

Why is it that whenever profitability gets squeezed, the first cost to get looked at for elimination or shrinkage is training? 

Continuing education is money well spent in terms of asset quality, asset growth, and reduced personnel turnover. Employees understand when you're being short-sighted and they understand at a visceral level that you're impacting their value in the workplace.

They probably won't tell you that in quite those terms.

But they may ultimately vote with their feet if they don't like the apparent conclusion.

4. Figure out how to home grow your own talent appropriate to your unique environment. And put with some formality in the process.

This isn't a short-term fix. But it does cut through the vetting risks and builds bench depth on the lending line.

Have a plan--make one if you don't have one--and then fund it adequately and consistently from one strategic planning period through the next.

"Lender ingredients"--beyond the numbers

While you're at the task of figuring out how to assure, instill, and maintain the credit skills of your lenders, devote some attention to figuring out the soft skills that go with the job as well.

I'm referring to communications skills, primarily. However, there are other attributes that are as much acquired as inherited, including the ability to sell and the ability to think critically.

My eyes glaze over when I read so many one-dimensional views of what it takes to be a competent lender these days. Often the list is populated almost exclusively by functional skills, such as accounting, economics, and marketing.

Some of the most unqualified lenders I've run into have been among the best educated functionally.

An  "A" in the course work to qualify as an accounting major at a major university speaks in only a limited way to the full array of things that a good lender needs to know and do on a regular basis.

I recall several years ago a discussion with a senior bank manager who thought the non-functional (non-credit) skills so useful in banking were so much nonsense and a waste of time.

"Lenders don't need to know where to put the plates when they set the table. Why do you want to subject them to ‘charm school' sorts of courses?" 

My response to that was very much like the one I gave long ago to my boss in the army. He had an MBA from Harvard. But he lacked a highly developed skill in effectively writing the English language. When he fussed at me for making grammatical suggestions and edits on the proofing of memos destined for an audience outside our specific office, I said, "Colonel, I want you to sound like a Harvard man." 

Frankly, he didn't really know what to make of that. But apparently he decided that it wasn't a bad thing.

Putting a shine on your shoes--and more

Life is full of anomalies like that.

In one assignment, I worked alongside a contemporary who had a degree from one of the Ivy League schools. He had spent three years on active duty as a Marine Corps officer. In fact, he looked like the man on the recruiting poster except that he was now wearing a gray flannel suit rather than his dress blues.

His problem was that when he opened his mouth, his regional accent and his non-Ivy background were solidly on display.

There is a certain type-casting expectation that people likely have of each of us based on our education, work experience, and credentials. Better to aspire to be that type cast character that better matches success and high expectations. This means that we may need to develop a veneer that will overcome our rough spots and improve our marketability as salespersons and purveyors of our banks' products.

Things like how we sound, how we look, how we write are all attributes of the "package" that we bring to the job and that we can modify and improve. Everyone for whom we have any supervisory responsibility should be treated with the respect that comes from our appreciation of that individual as one who can be nurtured and developed. Sometimes we just can't see these things ourselves so all the more important that we try to fill in the gaps and experience components of those for whom we share some part in their success.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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