IDC Financial Insights Asia/Pacific’s latest report titled Lending Excellence is Composed of Many Moving Parts presents the new requirements for banks to respond to the unique challenges of the lending market across five segments of the credit processing life cycle, and the key objectives in building lending excellence in post-COVID times as lending makes a slow return to normal growth rates in Asia/Pacific.
“The ideal and all-encompassing mindset in lending excellence is risk-based decision analytics. The application of risk models to create risk scores for loan application or loan underwriting is already well-established in banks. This experience should be extended for risk-based scores in initiation, collections, and recovery as well as to many other crucial decisions in lending," says Michael Araneta, Associate Vice President at IDC Financial Insights Asia/Pacific.
Asia/Pacific banks rely on lending and net interest margins for more than 80% of their revenues. This observation on the importance of lending still stands and has been given much more context by the six big trends in lending identified in this study that have emerged.
Lending excellence calls for mastery in the different processes that make up the lending life cycle, ensuring speed of these business processes, accuracy and precision of the credit decision, and timeliness and accuracy of decisions across different parts of the lending lifecycle.
Each segment has its own unique objectives – speed might be the most important in some segments over others, whereas access to third-party information might be more important in other segments. Each segment also brings its own challenges, particularly credit and operational risk challenges.
Figure 1: The Many Components of Lending Excellence
There are many solution providers that support the breadth and depth of capabilities required for lending excellence. Whether through cloud-based platforms or solution sets that bring together different functionalities from various units in the bank, what is needed is a number of varied lending microservices that are extremely agile and cater to different lending needs.
"In the era when new and alternative data can hone credit models, it might be in data and data analytics by which the participation of banks in lending will be most welcome. Some, however, will grow big and well beyond the start-up and tech worlds. Financial technology (fintech) banks will emerge and will compete more directly with traditional banks," concluded Darshiniy Selvaratnam, senior market analyst at IDC Financial Insights Asia/Pacific.