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Fewer analysts in the market — and higher compensation demands — are leading banks to consider outsourcing the role to save money and resources.

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A Competitive Market Leads Banks to Outsource Credit Analysts

  • 11/11/2017

Successfully recruiting a qualified credit analyst is proving to be quite a challenge in today’s banking environment. There are a number of contributing factors, including what banks can offer for compensation compared to other industries, the evaporation of commercial credit training, and a lack of college graduates in certain community markets.

With a shortage of individuals in this role, credit analysts are highly sought after, and analysts are demanding higher wages than what the banking industry is accustomed to paying.

In the past, it has been common practice for banks to outsource loan review, compliance testing, and internal audit functions — so why not the credit analyst role?

Fewer credit analysts available in the market

Historically, banks have hired recent college graduates as credit analysts with the expectation of developing them into commercial lenders and/or future management of the bank. In theory, this practice makes sense. But in today’s market, the success rate of banks actually converting a credit analyst into a long-term employee seems to be the exception rather than the norm, and many banks have already abandoned their commercial training programs for this very reason.

Over the past decade, many banks have migrated to hiring seasoned credit analysts who aren’t looking to move to a customer-facing role, making it all the more difficult to find permanent analysts in the market at an affordable price.

Outsourcing analysts can be a cost-effective alternative

In recent years, a number of outsourced providers have started meeting the demand for credit analysts. With the market increase in compensation for this role, outsourcing may now be the cost effective option. This is especially true when you factor in the time and intangible costs from recruiting and training, while also accounting for increased efficiency or production from an experienced analyst/outsourced provider.

Banks still have underwriting control

From my conversations with several bankers, it is clear that many banks do not want an outside vendor impacting their underwriting decisions. Banks want to make loans to familiar borrowers, and they don’t want the potential for an over-critical or negative analysis from a third party to hinder their ability to do so.

Outsourcing credit analysis should not impact the bank’s underwriting practices.

It’s important to understand that your bank will always own and control the underwriting process. The primary focus for outsourced credit analyst services is to provide all the relevant credit information in a consistent format, which will allow the decision makers of the bank to make a well-informed credit decision. Outsourcing credit analysis should not impact the bank’s underwriting practices.

Outsourcing doesn’t mean sacrificing turnaround times

Banks take pride in their ability to provide quick responses to their borrowers. Outsourcing analyst work doesn’t mean longer turnaround times. If you are considering an outsourced solution, make sure that you establish defined expectations for turnaround times with your vendor.

You could also consider segmenting the credit analyst work flow between new credit requests and ongoing portfolio monitoring. It may make sense for a bank to analyze new money requests in-house, and then to outsource the less time-sensitive renewal requests and annual reviews.

Training and retaining analysts requires significant resources

Even if you are successful in hiring a qualified analyst candidate, the time and resources needed to properly train a new hire with little or no previous credit experience can be quite extensive. Typically, when a bank is large enough to have a pool of credit analysts, there is usually a full-time employee who helps train and develop their skill set. But if you work at a smaller community bank, you might only have one or two analysts on staff.

It is common practice for a senior analyst, credit officer, or a manager from the credit administration area to oversee a new analyst. But these employees usually maintain a full workload in addition to providing this, which may result in inadequate training for the analyst, or an overstressed managing employee.

The challenge doesn’t end once you successfully hire and train a new credit analyst. In fact, one of the biggest challenges still remains — keeping the analyst in the role. In the current banking environment, most banks are lucky if they can keep an analyst in the role for two – three years before the individual leaves for higher pay or a more satisfying analyst role somewhere else. And then it’s time to start the recruiting and training process all over again.

How we can help

At the end of the day, banks want a viable option to end the seemingly never-ending recruiting, hiring, and training cycle for credit analysts. By outsourcing this role, banks have new opportunities to provide cost savings and improve quality for their customers. CLA bank professionals know the banking industry and can help determine if outsourcing credit analysts would be beneficial for your customers and your bank.