Consultant Bob Stowell explains the importance of business lending portfolio management.

Make the move from MBL to MBS

‘Be proactive and hunt for who you want.’

October 30, 2018

Forget member business lending (MBL), advises Jim Devine, CEO of Hipereon Inc.

Instead, embrace member business services (MBS), which is more proactive than MBL.

“We need to be proactive and hunt for who we want,” says Devine, who addressed the 2018 CUNA Lending Council Conference in Anaheim, Calif., with Bob Stowell, a former credit union executive who’s now an executive management consultant with DFTC Inc.

In other words, target businesses that fit your MBS profile with a full range of business services.

“We need a deposit strategy,” Devine says, to improve MBS efficiencies from the cost side. “We can’t get caught up in a commodity mindset.”

Another key to MBS success: Focus on portfolio management, Stowell advises.

“How do you know if it’s working the way it should?” he asks. “How will you test it to make sure it’s valid? You don’t want to find out how your portfolio management works after your loans start going bad. Go back and make sure you’re satisfied that every step in that process works like you think it should.”

This includes examining:

  • Your risk-rating matrix.
  • Concentrations in the credit portfolio.
  • The location, industry, and type of each loan.
  • Software for analysis and tracking.
  • The integration of your MBS efforts with your asset/liability management program and enterprise-wide risk considerations.
  • Pricing strategies and terms.
  • Loan loss reserve methodology.

“On every loan, consider what could possibly go wrong,” Stowell says. “Can you mitigate it? Spend more time in the loan write-up detailing risks and mitigations.”

He says NCUA is focusing more in three areas related to MBS:

  1. Your strategic plan. “A strategic plan must go beyond one year and be in-depth,” Stowell says. “You need to think forward.”
  2. Stress testing. Work with your finance department on this, he advises.
  3. Portfolio analysis. Go through your risk ratings, loan concentrations, and more.

“Make notes of changes so you can prove you’ve done your work.”

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