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Customer diagnosis, and the “laying on of hands”

In business banking, community bankers can’t be replaced by smartphones

Customer diagnosis, and the “laying on of hands”

Several years of daily running no doubt contributed to my needing a lumbar disc fusion a few years ago. The condition is “spinal stenosis” and the fix is often a fusion of the discs creating the problem.

Unfortunately, my pain has returned and over the last few months has become as bad as it was before the surgery. The next step in the diagnosis and treatment of my current condition is an MRI farther “north” on my spine.

My doctor, a specialist in pain management, was careful to say that an MRI will not necessarily be conclusive and there’s an element of educated “guesswork” involved in determining the next steps. Too often, he observed, surgeons make firm diagnoses based on the “pictures” without a thorough investigation that includes a careful quizzing of the patient on the location, intensity, duration, and frequency of the symptoms.

“We need more ‘laying on of hands’ in the old fashioned sense,” he told me recently.

Can lenders engage in “laying on of hands”?

This doctor’s approach struck me as a welcome contrast to the “heal by steel” approach of an orthopedic surgeon I recently consulted. Maybe there should be more art than science in figuring out what do next.

This got me thinking, just what might our credit analysis equivalent of the laying on of hands be? 

We have certainly become familiar with the new world of credit underwriting typically practiced by the big banks. This includes the automation of the process  designed to minimize time and effort. Many of us chafe, as do our customers, with the impersonal and increasingly indirect nature of commercial credit underwriting today.

A bank’s marketing mavens usually tell us that the old ways of doing business are passé. Customers want convenience and fast service and that usually is short hand for digitally driven modes of access and delivery. Branches, they tell us, are becoming relics and we have to change with our customers’ evolving priorities and preferences. [Read more about this school of thought in “King of the disruptors”]

While this may be true as far as it goes, any commercial lender who has built—and serviced—a portfolio of business loans knows that borrowers want something much more personal. They want to talk to us and pick our brains. They are also proud of what they have done and want us to come see it and “walk the floor” with them.

In our world, the functional equivalent of “laying on of hands” means visiting the customer’s business and being “present” to him or her as the business progresses through the growing pains and inevitable frustrations and occasional setbacks.

This is just where our fundamental competitive advantage as community bank lenders resides. The customers want face-to-face contact when borrowing money and we prefer to do business with them that way too. Our big bank competitors have a very structured approach in the name of efficiency and it’s often devoid of much human interaction.

Taking the closer look

The borrower’s financial statements are to us the likely equivalent of the MRI, CT scan, and X-ray pictures used by our medical providers. We examine these statements and subject them to a number of analytical routines aimed at making informed judgments concerning the borrower’s liquidity, capital adequacy, earnings expectations, and prospective levels or ranges of debt service coverage.

But when credit is underwritten remotely, the lender seldom does much else.

Bankers have to be amateur psychologists too.

• Is my borrower a natural optimist or a more cautious personality type?

• How do I factor this insight into my assessment of what I’m being told?

• Is my borrower grounded in the essential skills and knowledge of his business and the industry in which he operates? 

Good lenders are good listeners. And good listeners also tend to be good interviewers. They have a cultivated ability to ask the right questions.

That still-elusive “C”: Character

We also have to assess a borrower’s character, one of the key “Cs” of credit.

There’s no report card on that better than our own experience with that person. But how do we do that? And how do we help the younger bankers with whom we work and hopefully constructively mentor on what that means and how to assess it?

The older I get, the more inclined I am to judge my borrower by the way he treats his stakeholders. Words like respect, fairness, caring, and responsibility are value-laden descriptors and I need to try to understand whether they motivate the fundamental behaviors of my borrowers.

It’s not possible to build such assessments quickly or casually. It takes time and first-hand observation. It’s a transaction by transaction affair. And if I build my assessments carefully and consistently, I’ll have made a wise investment leading to a strong relationship with each of my borrowers.

That’s why community bankers start with a natural and fundamental advantage over the big bank banker.

Being local is a huge plus and responds to the borrower’s own preference for the sort of relationship each seeks from a bank.

Community bank lenders need to fully realize and act like the competitive advantage lies with them.

It really does.

Just ask the borrower.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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