Introduction
Mid-sized lenders have always operated in the shadow of their larger competitors, and external pressures have never been greater. With rising default rates and margin compression pushing against these lenders as they try to make headway, many have found success by shifting their approach. Rather than trying to compete on rates alone, smaller lenders are turning their focus toward data-driven insights as a differentiator. Diving deeper into data analytics and keeping close watch over key performance indicators (KPIs) can provide lenders with the details they need to make better choices about their loan portfolios and build a competitive edge.
Portfolio Health Metrics You Can’t Ignore
Some of the most important KPIs for mid-sized lenders to watch today include:
- Loan-to-Value (LTV) ratio: LTV compares the value of a loan to the asset used as collateral, with higher ratios indicating stronger risk for the lender.
- Debt Service Coverage Ratio (DSCR): This metric is used to assess a borrower’s ability to repay a loan, and loans that score below 1 mean there’s a strong possibility of the borrower being unable to cover the debt.
- Non-Performing Loans (NPL): These are loans where the borrower has missed payments for a period of 90 days or more. The more NPLs a lender has in its portfolio, the more difficulties it faces.
- Delinquency: Borrowers who are delinquent in their payments represent a significant risk for lenders.
- Loss Reserve: Lenders typically establish a loss reserve that serves as a bulwark against missed payments from borrowers. The riskier the loans, the more the lender has to put away in these reserves. This limits the lender’s resources for building the business.
- Return on Assets (ROA): The ROA ratio measures how successfully a lender is able to convert its assets into net income. Lower ratios indicate inefficiencies or too much debt.
Operational Efficiency KPIs That Slash Cost Per Loan
Other metrics can tell lenders how well their workflows are serving their needs:
- Pull-Through Rate: This tells lenders how many loans they successfully close out of how many applications they receive.
- Decision to Close Cycle Rate: This metric measures the speed with which the lender processes a loan application from the initial decision to grant it to the closing.
- Abandoned Application Rate: Lenders use this metric to determine how many applications were started but never finished.
- Average Underwriting Hours: This lets lenders know how long they take to underwrite a typical loan, on average.
Customer-Centric Metrics for Retention and Growth
Certain KPIs can tell lenders a lot about how well they’re getting along with their customers, including:
- Net Promoter Score (NPS): This is compiled from surveys asking borrowers how likely they would be to recommend the lender to someone they know.
- Digital Self-Service Adoption: This metric shows lenders how many of their customers are using the self-service tools available on their websites.
- First-Contact Resolution: Measuring how many customer inquiries are satisfied with one interaction with the lender’s customer service team, this metric is important for understanding how well the lender is serving its customers.
Risk & Compliance Indicators Across State Lines
There also are some metrics that are important for understanding a lender’s risks regarding interstate operations:
- Concentration Risk: This refers to the risk of a lender relying too much on borrowers from a particular geographic area.
- APR Caps: Depending on the state, lenders may be restricted in terms of the APR they can charge borrowers.
- Complaint Ratios: These measure how many complaints are lodged against a lender versus market share or loan volume.
Building an End-to-End Analytics Stack With Vergent
Tracking these and other KPIs can be crucial for a mid-sized lender’s ongoing success. With customizable dashboards, hundreds of report templates and real-time data analytics capabilities, Vergent’s Loan Management System gives these lenders powerful tools they can use to gain insights. With our platform, lenders can drill down into specific branches, products or borrower segments to monitor the metrics that matter most to them. Compared to bolt-on business intelligence solutions, Vergent’s all-in-one loan portfolio analytics system brings everything together in one place for fast, smooth decisioning that leads to better results.
Ready to protect your portfolio and your profits?
If you want to learn more about what Vergent’s Loan Management System can do for you, get in touch with us today to schedule a demo and start seeing your KPIs clearer than you ever could.
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