At $4.4 trillion in trade payables, term loans, and working capital loans, private-company credit represents one of the largest credit markets in the U.S.  Today, C&I lending represents about 25% of all loans, down from over 40% in 1950.  According to a new study by PayNet, Inc. banks can look to higher profitability in 2017 in their core franchise credit C&I business.
 
PayNet’s study shows that between 2008 and 2016, banks could have achieved $2.6 billion in additional net income, at a higher risk-adjusted return, had they maintained their share of C&I lending.
 
“C&I lending is one of the highest return businesses (adjusted for risk) for a bank, and it is far larger than most banks realize,” states William Phelan, president, PayNet, Inc.  “Banks must rediscover their roots in the C & I lending business by adopting new technology to make the processes of underwriting and loan administration easier and less costly—and, in doing so, increase their ROE.”
 
Banks can find financial technology useful to reduce the time to underwrite a loan from 50 hours to just over 2 hours. In addition, banks can further utilize technology to lower the cost of loan review by 40% while at the same time increasing the frequency of the loan review cycle from once per year to four times per year for the highest risk accounts.
 
“Community Banks can use technology, the very tool being used against them by competitors, to solidify C&I lending as a key business segment with less risk and higher returns,” Phelan noted.
 
PayNet will conduct an educational workshop Turbo Charge Your Credit Process at the ICBA LIVE national conference in San Antonio at the Henry B. Gonzalez Convention Center, Room 225 on Friday March 17, 8:40am-9:35am.  This session will educate community bankers about credit scoring best practices to lower the cost of underwriting, including how to incorporate credit scores into an expert judgement scorecard and how to map risk ratings in the credit underwriting process.