(Credit: Evelyn Simak, TG3610)
Back in my early banking days, I worked with a couple of “star” lenders.
One was a guy named Dave, who was a big-producing CRE lender. The other, Mike, was a younger guy who happened to work for Dave. The two had very different approaches – Dave was aggressive and an extrovert while Mike was quiet and more steady – but both got results. Eventually they both left for greener pastures, and that is where the story gets really interesting.
Mike jumped to a competing bank, and was able to take a surprisingly big chunk of his book of business with him. Over the last decade Mike has been promoted
multiple times, and is now successfully leading and growing a new market for the bank.
Dave went to work for a smaller bank, becoming the CLO and a member of the executive management team. When Dave’s old customers found they couldn’t replicate their previous relationship with Dave at his new bank, they declined to follow him. Dave clashed with the management style of his new employers, and in just over a year, he was out of a job.
By any metric, both Dave and Mike had been very good lenders who seemed poised for big things. They each possessed the three big traits that we see in great lenders. And yet, only one achieved that status, or what we call an “alpha lender.”
Why did their career paths diverge? Because only Mike’s bank took an active role in further developing those key traits.
Here are a few ways your bank can produce its own share of “Mikes.”
Yes, some people simply have more empathy woven into their DNA, and we should seek out those types to be our lenders. Hiring absolutely matters. But, a great lender has to be able to do more than just feel empathetic toward their borrowers; they have to be able to act on that empathy. This requires a specific environment at the bank that can serve as the foundation for differentiated service.
Culture change is admittedly VERY hard, especially in large, complex organizations like banks. However, we often see commercial loan teams that develop their own distinct “mini-culture” that is quite different from the rest of the bank. Leaders of loan teams can absolutely create these mini-cultures, and should strive for an environment that includes three core elements:
- A customer-centric approach: This doesn’t mean “the customer is always right” and that we just bend to their demands. That is generally a bad idea in commercial lending. Instead this means that all interactions are designed from the customer backwards. We set up the entire process so that we can understand their needs, be flexible enough to meet them when possible, and respond quickly and efficiently.
- Lenders have both authority and accountability: In order to be responsive to their customers, lenders must have the authority to make decisions. Obviously lenders should not have full autonomy in approving their own credits, but they should have the ability to make some basic decisions. This includes things such as loan structures, pricing, and renewal negotiations. For this to work, lenders must have clear guidelines and accountability for their results, but when banks get this right, they help lenders build deep, value-added relationships with their borrowers.
- Transparency: Lenders are too often kept in the dark about the big-picture strategy of the bank. Why are loan goals set where they are? Which loan types fit best with the balance sheet? If lenders are expected to always act in the best interest of the organization, it’s vital that they have a better understanding of where the bank is headed and how their contribution fits.
Having an open and ongoing dialogue with customers is essential for great lenders. However, very few banks actually train on these skills. If you mention “lender training” to bankers, they universally think of credit training. Yes, lenders need to understand the basics of credit in order to know the difference between a good deal and a bad one, and how to structure a deal that best fits the borrower’s needs. But credit skills are really just table stakes. We’ve seen plenty of folks with a great credit background who are terrible lenders.
In order to be able to communicate with customers, lenders also need an understanding of asset liability management. They must understand the why and the how behind the pricing differences for various structures. We have seen lenders be far more successful in selling floating rates or prepayment penalties when they understand the circumstances in which those structures matter most to pricing, and could properly explain that to their customers. This falls into negotiating, which again, most banks ignore in training. Your lenders are negotiating millions of dollars in transactions for your most profitable and risky products. Why not get them formal training in negotiating a deal?
In addition, lenders will need to be able to communicate deal progress to their borrowers. What steps still need to be completed? How long will it take? And how can the lender help shepherd the deal through all of those steps so that closing happens when it is supposed to? Lenders should be able to answer all of those questions, which means dedicated training on “how the sausage is made.”
Quantitative > Qualitative
Finally, lenders need to be able to overcome their “lizard brain” and make sound decisions based on data. These decisions include everything from how and where to prospect to where to look for likely credit problems in the existing portfolio. In short, lenders need to know what constitutes a “good deal” for the bank, and spend their time chasing those instead of the deals that won’t really move the needle.
In order to do this, though, lenders need better tools. We often ask the question, do your lenders have better tools for playing fantasy football than servicing their customers? Most banks have to admit that their lenders primarily use tools that are designed to “say no” to deals. Risk management is important, but your lenders also need tools that help them “say yes” to deals and generate revenue. They need sales tools to help them prospect, price, and service their customers, and unfortunately, most walk into meetings with customers armed with nothing to help but a pen and a legal pad.
As you can see, with the right culture, training and tools, the bank can have a great impact on the traits that make a great lender. Going back to Dave and Mike, those three things made all the difference in the outcomes.
Dave landed at a bank with an “old school” approach to banking, where lenders had no authority to serve customers, no training other than basic credit, and no tools outside of being able to lookup customer balances on the core system.
Mike landed at a bank that was the polar opposite. The loan group put customers at the center of every decision, and they invested in the training and tools to develop great lenders. It certainly worked for Mike, and when you dig into the data on the productivity of great lenders, you’ll see that these are investments with a huge ROI.