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In Focus Commercial Credit

Why the end of expert manual underwriting is overplayed

Old fashioned values – can the art of credit decisioning still have a role to play in today’s busy industry?

Tom Senior Director of credit, Cambridge and Counties Bank

As the media are keen to point out, the real-estate finance market remains buoyant or, perhaps, more than buoyant. This has resulted in margins, for some lenders, being squeezed back to close to 2007 levels, where you can question the individual value of the loan to the lender and the only way to ensure adequate performance for the shareholders tends to be via volume. Which closes the circle back to the first point. However, as a specialist bank, we still see

a steady flow of real-estate proposals that fit our risk appetite and allow us to maintain our margin. A key part of this ability to continue to be

successful is our commitment to manually underwrite each case. This allows us to assess each loan on its individual merits, whilst still delivering excellent turnaround times. Whilst manual underwriting is not

uncommon, with many institutions retaining credit departments, most are constrained by either the output of a credit- scoring model or narrow approval criteria. This, in turn, means the underwriters are primarily used to make decisions on the


beyond this time frame. I prefer, instead, to utilise a credit-

It is not possible to build the perfect model, and, even if you did, you cannot remove model risk

margins, rather than taking a holistic approach to the whole case, using their experience and expert judgement. Whilst I acknowledge that credit

grading systems and models are extremely sophisticated today, and have their place in almost all financial-services businesses, it is not possible to build the perfect model, and, even if you did, you cannot remove model risk. I, therefore, remain sceptical as to the

benefits of a credit-scoring model in its ability to assess more than simple, high- volume credit proposals on a stand-alone basis. One of its biggest downsides is its limited

ability to look back over more than six years and look forward with the benefit of this hindsight and knowledge gained

grading model as a starting point and rely on the skill and experience of a dedicated underwriting team to assess the entire application, utilising not only the information provided, but seeking further details if necessary and having a view on the market and external forces that could impact on the future serviceability or likelihood of default. The question, of course, is can you use

this model and still deliver the kind of rapid response both the industry and customer expect in this day and age? We find that we can. By using highly experienced staff, empowered to take decisions, having short communication lines, clear policies, and suitable credit-grading tools. So, overall, I am of the opinion that far

from technology heralding the end of the human underwriter, it has focused the minds of banks, like ourselves, to use their people to better effect and differentiate our offering from the ‘computer says no (or yes)’ model. Long may it continue! CCR

February 2016

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