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Improving the credit underwriting process

Streamlined credit process results in expected loss reductions of $15M in first year.


The client sought help from McKinsey in coordinating the relationship of its middle-market line of business with its risk management group. This association was characterized by ineffective and inappropriate commercial-credit decisions, portfolio- tracking methods, and metrics. Loan charge-offs exceeded normal expectations, and our client made little or no economic profit on significant portions of its middle-market credit portfolio after full-loading all costs.


McKinsey began by examining the client's loan portfolio to determine sources and concentrations of risk. This required analyzing the pipeline to gauge the credit outlook and determining the organization's appetite for risk along each dimension. McKinsey then detailed the end-to-end process across sites including time, cost and quality. To accomplish this, the team identified sources of variation, modeled the end-to-end economics, established appropriate trade-offs, and mapped roles and responsibilities.


The next step was to benchmark the client's competitive position and customer requirements by assessing current performance and the performance of likely market entrants. McKinsey synthesized its results and developed recommendations that identified opportunities to reduce risk and/or costs and enhance customer satisfaction. McKinsey also clarified roles and responsibilities between the middle-market line of business and the risk group.


McKinsey's plan established a risk strategy and management framework that was integrated with the client's overall strategic business objectives. McKinsey helped the client streamline the credit process, resulting in an expected loss reduction of $15 million in the first year. The client's improved focus on origination quality and reduced charge-offs was expected to boost return on capital by 3 percent over 3 years.

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