CFO’s Role in Successful Bank Third-Party Lending Programs
By Eric Segal & Larry Davis
Bank executives are challenged to make informed decisions on executing third-party lending programs, often on the fly. But what happens when these decisions are made without consulting your CFO and financial team? The consequences can be financial losses, accounting problems, or missed opportunities.
Below, we’ll explore how engaging with your CFO and finance team from the outset can facilitate better decision-making and consensus-building. We’ll also offer practical solutions to help you avoid the most common pitfalls in third-party lending.
Understanding Third-Party Loan Origination
Before diving into why and how to engage your financial experts, let’s take a moment to clarify the difference between organic loan and third-party loan origination.
In organic loan origination, the bank is responsible for every aspect of the loan lifecycle—from vetting the borrower and assuming the credit risk to managing the loan through internal processes and platforms. This method offers direct control over the terms, structure, and ongoing management of the loan.
Third-party loan origination involves acquiring loans from other institutions. This could mean purchasing participations, portfolios, or even whole loans from external sources such as other banks, brokers, or loan syndication platforms. While this approach can help grow and diversify your portfolio, it also introduces new complexities and risks, including counterparty, credit, and operational risks.
Understanding these distinctions is crucial; third-party loan origination requires a different set of considerations, particularly around risk management and compliance. That’s where the CFO and finance team come in—ensuring these transactions align with your bank’s overall strategy and financial goals.
Engaging Financial and Accounting Experts: A Must for Third-Party Loan Decision-Making
Third-party loan origination comes with unique risks that require careful oversight. Your finance team plays a crucial role in managing these challenges by providing critical insights and support in several areas:
- • Risk Management: Provides a comprehensive assessment of how the loan impacts your bank’s financial performance, considering credit, operational, and interest rate risks.
- • Timely Information Flow: Ensures that the information delivered aligns with your financial close processes, facilitating timely cash management, reporting, and reconciliation.
- • Strategic Fit: Evaluates how the loan fits within your bank’s short-, medium-, and long-term financial plans, ensuring alignment with the overall strategy.
- • Regulatory Compliance: Ensures all transactions comply with relevant regulations and internal policies, helping to avoid potential compliance issues.
Steps for a Smooth Third-Party Loan Origination Process
To avoid common roadblocks in third-party lending, early and consistent communication with your finance team is essential. A structured approach ensures that each loan purchase aligns with your bank’s financial strategy and is executed with minimal disruption. Here are key steps to keep the process running smoothly:
- Engage Early: Involve your CFO and finance team early to align strategic goals and risk assessments.
- Document Thoroughly: Provide comprehensive documentation that outlines how the transaction fits within your bank’s strategic plan and complies with policies.
- Perform a Detailed Analysis: Present a thorough analysis, demonstrating how the transaction aligns with your bank’s , risk appetite, and regulatory requirements.
- Update Regularly: Maintain ongoing communication to inform all parties of the transaction’s progress and emerging risks.
Streamlining Third-Party Loan Decisions with Expert Guidance
Managing the complexities of third-party lending requires a high level of expertise and precision. Involving financial experts from the outset is crucial to ensure alignment with your bank’s strategic goals and regulator’s sexpectations. However, if your team lacks the capacity or specialized knowledge to address these challenges in-house, outsourcing to experienced consultants can offer the strategic insights and financial analysis needed to navigate these transactions with confidence.
At CFO Consulting Partners, we provide tailored guidance that helps banks like yours make informed, risk-balanced decisions. To learn how we can support your third-party lending strategy, contact us here or contact Eric Segal at 609.309.9307 x702 or Larry Davis at 609.309.9307 x716.
About the Authors
Eric Segal serves as a Managing Director at CFO Consulting Partners, where he leads the Financial Institutions and Insurance practice. With experience as a former CFO, Eric has been advising banks, crypto firms, and fintech companies since 2008, specializing in strategic financial planning and regulatory compliance.
Larry Davis is a Director at CFO Consulting Partners within the Financial Institutions and Insurance practice. A former Controller at a regional bank, Larry has been consulting with banks since 2013, focusing on accounting, financial reporting, and compliance to enhance operational efficiency.