Examining the Retail Bank Loan Mortgage Process

In today ‘s fast moving and competitory concern universe, operations direction is really of import in merchandise and service operations since it forms the bosom of the administration by commanding the operations system. Operations direction carries out the concern procedure function or the value watercourse function, design of the operations in footings of stuff information flow, process/cycle/set up clip, etc and suggests quantitative and qualitative procedure betterments to the direction so as to implement strategic alteration to present the house ‘s merchandises and services. The function of Operations direction in an administration is of polar importance as the professional operations directors are capable of implementing Lean Thinking, Total Quality Management and Continuous Improvement techniques that enable the administration to accomplish sustainable competitory advantage.

My operations direction undertaking is on the Retail Bank Loan Application procedure at a mid-sized local bank in Australia. The information contained herein is strictly confidential and I have obtained the same from my friend who is presently working as a Loan officer in the Retail Financial Services Division. I have refrained from adverting the name of the administration due to information security grounds.

In this operations undertaking, I have applied my old work experience at JPMorgan Chase. At JPMorgan, I was working in the Retail and Corporate Banking division where I was holding an chance to detect the fiscal demands of clients, run into the clients to obtain information in footings of their income inside informations, pervious recognition history, indirect paperss, review their application procedure and reply the specific inquiries which they might hold about the loan process. I was responsible for explicating to clients the different types of loans and recognition handiness constructions and the footings and conditions contained in this.

Wherever possible I have compared and contrasted the retail banking operations at JPMorgan Chase, USA with those at local mid-sized bank in Australia [ hereinafter referred to as Bank A ] . This was a powerful undertaking as I had to analyze the bank loan application procedure at the Bank A in item and thereby place procedure and quality betterments in their concern procedures for the clients, design appropriate tilt and better solutions that would outdo address their concern demands and implement the operations betterment techniques.


Bank A has five key concern segments-Wholesale Banking Services, Retail Banking Services, Investment Banking, Treasury and Securities services. It provides working capital to little and average graduated table endeavors, trade services, corporate finance and banking services. The aim of its retail bank is to supply its retail and corporate clients a full scope of fiscal merchandises and banking services. The merchandises and services are delivered to clients through its subdivisions and bringing channels like ATM ‘s, Phone banking and Net banking.

Bank A has a good administration civilization that binds together all the 1000+ employees and distinguishes them from non-members. The bank has an effectual employee battle and therefore the employees can readily associate themselves to the administration. Bank functionaries perceive themselves as being unified with the administration. Bank A has a sound direction construction, strong corporate administration ordinances and a willful dedication to give better quality service to its clients.

Retail Loan Application procedure at Bank A: an Overview

Fig 1: Stairss involved in a bank loan process

The Bank Loan or the Mortgage Application procedure consists of the above procedure stairss in general. I have prepared the above procedure map utilizing the e-draw application used for fixing flow charts and planing value watercourse maps.

Each of the above procedure stairss can be explained as under:

The bank undertakes the publicity and selling activities for sale of its fiscal merchandises and services. One of the chief selling techniques employed by the bank is trading. Trading involves administering booklets, postings and booklets about the loan merchandises. The bank besides makes usage of mass selling media such as newspapers, wireless and telecasting.

Receipt of Loan Application by bank

Fig 2: Event Driven Process Diagram

The above diagram is an Event-Driven procedure diagram picturing the process right from the bank loan application phase till the underwriting of the loan.

On the footing of his fiscal or working capital demands, retail or the corporate client files a loan application with the bank. The bank receives the information with respects to client ‘s concern or employment informations, income inside informations, fiscal place, collateral inside informations etc. These paperss are so scanned and sent across to the Risk squad who evaluates any fiscal and operating hazards potentially

contained in the loan dealing. Risk squad here besides specifies the maximal qualifying sum of the loan which the client is entitled to. The client inside informations and paperss are so entered and saved into the house ‘s centralised Mainframe Database system. This is followed by the underwriting phase wherein the big fiscal service or insurance supplier agrees to accept portion of the hazard contained in the dealing in exchange for a premium.

Confirmation of client informations

The paperss submitted by the client such as employment history, income inside informations, concern fiscal statements etc are so validated by the in-house confirmation squad. The recognition history of the client is besides reviewed here utilizing the Personal Debt Payments Report maintained by the recognition evaluation bureaus.

I have prepared the below flow chart to depict the stairss involved in the confirmation of employment informations submitted by the client so as to avail the loan. The centralized information service supplier is a 3rd party administration which collects and records the informations of the employed work force.

Fig 3: Flow chart for Verification of Employment Data

Agreement of footings and conditions of loan

Once the paperss submitted by the client have been verified and examined, the bank loan agent so proceeds to explicate the client the footings & A ; conditions contained in the loan understanding.

The footings & A ; conditions usually relate to:

Interest and capital refunds

Default charges

Changing the payment due day of the months

Charges for early backdown of loan or early refund

Set off regulations to use the recognition available in any other history

Detailss of joint borrowers and collateral inside informations

Insurance charges and

Nominee Declaration

Loan blessing by officer, closing of loan application and expense of loan returns

Once the client agrees to the footings and conditions, the application is so sent to the Loan Officer for his blessing. Loan officer here scrutinizes the minute inside informations of the application, reviews the hazard rating studies, re-negotiates the rates and fees of the loan [ if required ] and based on his best judgement of the facts of the instance, gives his concluding blessing.

The client is so informed that his application is now successful and bank so eventually prepares to shut the application and arranges for a wire transportation of the loan financess into the clients bank history or straight makes the payment to the concerned counterparty say an educational establishment or a existent estate proprietor, depending on the intent of the loan.

Using the Value Stream Mapping technique

[ Slack and Chambers ( 2007 ) , Page 471-Operations Management. 5th edition, Prentice Hall ]

Value watercourse mapping [ VSM ] is a technique used in operations direction for analysing and bettering the bing procedures. It is besides known as Business Process Mapping / Modelling ( BPM ) . The application of VSM technique began in fabrication administrations.

VSM depicts the assorted maps of a peculiar procedure and the manner in which these maps are being carried out by the several sections within the administration. It involves an in-depth analysis of the procedure informations in footings of processing clip or the rhythm clip ; value added activities and non value added activities, figure of employees involved at each phase of the procedure and so on. It is a ocular representation of each activity involved in the procedure and shows the flow of stuffs or information or the people / clients involved. It provides an chance to the Process Manager to place any possible qualitative and quantitative betterments of a peculiar procedure and extinguish non value adding activities.

VSM helps the administration to change over their procedures from a “ push ” based system to a “ pull ” based system.

In a push based strategy- the information, merchandises, units of work, stuffs etc. are pushed through the system to the client so as to run into operational capacity. This scheme is applied to that constituent of the supply concatenation which has small fluctuation in demand. Push schemes have lesser capableness to run into altering demands and penchants of clients and frequently stop up in inordinate stock lists due to heavy buffer stocks.

In a pull based strategy- the consumer places the order with the marketer as per his specific demands and thereby “ pulls ” it through the distribution channel. Therefore, here the units of work, merchandises, resources, stuffs etc are pulled through the system based on client demands. This in bend reduces the line uping times and operation constrictions. This scheme is applied to that constituent of the supply concatenation which has high fluctuation in demand ; production and distribution of merchandises are straight relative to demand and involves higher outgo on advertisement than push scheme.

Following are the chief stairss involved in value watercourse mapping exercising:

Maping the current province of the procedure [ “ As-Is ” map ]

Future province map or the Thin map

Procedure Improvement

The first measure in value watercourse function is to map the current place of the procedure. Having mapped the current place, we can measure countries where there are possible chances for procedure betterment and therefore can get down planing the execution program. For case, we can place in some procedures that 40 hours for peculiar activity is excessively long and this peculiar section of the full procedure should be completed in merely about 18 hours. Once we have identified the procedure betterments, we can plan the Future State Value Stream Map.

Assorted mapping techniques and symbols are used while pulling a value watercourse map. For case, we use consecutive line arrows to denote manual information flow [ paper work between the assorted sections ] and zigzag pointers to denote the flow of electronic information [ in a bank loan procedure, this can be come ining the client inside informations into the bank ‘s centralized database direction system or remittal of financess by the loaner ( i.e. bank ) to the borrower ( i.e. the client ) ] . We can do usage of “ lightning Bolts ” to demo the assorted procedure betterments.

VSM of the Retail Loan Process at Bank A

Procedure Background

Bank A is a mid-sized local bank in Australia.

Bank A has five key concern segments-Wholesale Banking Services, Retail banking Services, Investment Banking, Treasury and Securities services.

It has approximately 500+ employees in the retail banking / fiscal services division.

I have analysed the bank loan application process at Bank A in item. The information, facts and figures contained herein in the procedure function has been collected by me from my friend who is presently working at that place in the Retail Financial Services Division.

The company central office is situated in Melbourne and has offices all across Australia.

Wherever possible I have tried to compare the procedure at Bank A with the bank loan procedure at JPMorgan Chase and suggested the possible procedure betterments. After analyzing the facts and procedure inside informations of Bank A, I can state that Bank A does n’t utilize the latest package and banking database system which is presently been used at JPMorgan Chase. The work process at Bank A is still “ paper based ” in nature as compared to fast and accurate “ electronic based ” treating system at JPMorgan. I will lucubrate this in much more item in the Process Improvement Plan discussed subsequently.

The chief aim of this VSM exercising is to place uneconomical or non value adding elements and thereby extinguish them.

The Loan Officer is responsible for explicating different types of loan merchandises available, run intoing the clients to obtain their fiscal information, processing loan applications, O.K.ing them, negociating the footings and conditions, transporting out the underwriting process and closing of application.

The Compliance squad is responsible for hallmark of client informations and Risk squad analyses the exposure to fiscal hazards.

Fig 4: Current Value Stream Map of a Loan Procedure at Bank A

Entire Timeline

Explanatory Notes to the Current State Map:

The full procedure consists of the undermentioned stairss:

Processing of loan application: Bank A receives 50 loan applications per twenty-four hours on an norm. The processing clip per loan application at this phase is 40 proceedingss for explicating to client the type of loan or the fiscal merchandise which meets his support demands.

Confirmation of client informations is carried out by the Compliance squad and clip taken for the same per loan is about 35 proceedingss.

Hazard is evaluated by the Hazard Analytics Team and clip taken for the same is about 10 proceedingss.

Following phase is the Lender Underwriting procedure which takes 50 proceedingss.

The concluding phase involves three stairss. First: Negotiation of involvement rates & A ; fees and understanding of the footings and conditions of the loan dealing, Second: closing of the loan application and eventually: expense of financess which is carried out by the Remittance squad.

The bank closes 25 loan applications per twenty-four hours.

Key to the symbols and abbreviations used:

— -Connector

— -Push Arrow

— -Timeline Section

P/T per appln = Processing clip per application in proceedingss

V/A = Value Added clip in proceedingss

R= Rejection Rate. Loan Applications are rejected due to inadequate fiscal information, client supplying false information sing employment income or sham concern fiscal statements, high hazard involved, client non holding to the footings and conditions, bad recognition history of the client or any other land which the bank deems fit based on the fortunes of each instance. # of E’es = Number of employees involved at each phase ; ft= distance in pess and mt=distance in metres.

Fig 5: Current State Analysis


Processing clip per application





Hazard Evaluation




Footings & A ; Conditionss




Remittance of Fundss


Entire Time



Based on the current VSM, we can see from the above pie chart that closing of application takes about 42 % of the Total processing clip per loan. This is followed by subventioning with 15 % , treating the application with 12 % , confirmation of client informations with 10 % , hazard rating with 8 % and so on. The entire processing clip per loan application can be significantly reduced if Bank A adopts a “ Web based application system ” which is adopted at JPMorgan.

Furthermore, we see that the entire value added clip per application is about 136 mins, so the efficiency rate comes to about ~ 40.6 % [ 136/335*100 ]

Entire lead clip is 30 yearss and Entire rhythm clip per loan is 30 yearss and 335 mins i.e.

30.23 yearss. Non value added activities account for about 48 % ** of entire rhythm clip.

[ **Please note that the inside informations of non value added activities ( NVA ) in footings of proceedingss / yearss were non available for the procedure, so utilizing my best appraisal and judgement I have simulated the NVA clip to be about 48 % of the entire rhythm clip. ]

Procedure Improvement Plan