In the past, accounting has not typically been associated with revenue generation activities. However, the use of controlled systems enables accounting teams to alleviate operational burdens and support strategic investing activities.
One popular strategic investment option for financial institutions is loan participation programs. Participation programs enable banks to increase loan volume without jeopardizing their risk profile or legal lending limits, which happens when capital restraints limit originating or funding larger loans. Additionally, if a bank or lending institution faces slow growth in its target market, loan participations enable pairing with other financial institutions; generating increased lending income for both parties.
While revenue-generating opportunities are a clear benefit to the bank as a whole, significant effort and responsibility falls upon the shoulders of the bank’s accounting teams to operationally manage their end-to-end monthly close process. It is not unusual for banks to walk away from new revenue opportunities due to the operational burden for implementing participated loan accounting. Numerous challenges exist for the two parties involved, the lead and the buying bank, related to the accounting for participated loans. Not only does the cash payment activity need to be divided and tracked between parties, but the accounting-related basis (deferred fees and other adjustments) must also be divided correctly. In addition, new fees often result from participation which requires the appropriate fee deferral. Ad-hoc tools such as Microsoft Excel and other EUCs are not capable of handling and tracking all participation activities through the life of the loan. The end result is that participation programs either have not started or are significantly stunted once the complications come to light.
So how can finance teams tackle complex participation accounting requirements, while simplifying their close processes? The answer is leveraging an accounting solution such as SS&C Primatics’ EVOLV, which enables a truly automated, controlled and predictable close process. EVOLV includes out-of-the-box, pre-configured functionality to support participation accounting regardless of portfolio size and product types. It is easily configured to apply different policies to different loan population, including seamlessly accounting for the participation event based on automated triggers. EVOLV eliminates costly manual processes by automating the entire process in a controlled, yet nimble way.
If your institution is considering or currently involved in participation lending, please download our "Bank Increases Revenue" case study to learn how EVOLV assisted in opening up revenue-generating opportunities for a large Midwest bank. If you are interested in hearing more about how EVOLV can help manage the complexities of handling split ownership, contact us at email@example.com or schedule a demo and more information.
Asset Management, Commercial Lending