General Bank of Canada
Driving automotive loan volume & quality.
A 25% compounded annual growth rate. An asset base that’s approaching $500 million. Achieving profitability in only 14 months. By any measure, General Bank of Canada has been an outstanding Canadian banking success story since opening its doors in 2005.
“Armed with real time results from our Portfolio Plus software platform, we’re able to grow our loan volumes with confidence,” says Gord Mooney, Chief Operating Officer for General Bank. “That’s because we’re very specific about the type of business we will and won’t accept. Our message to our sales force is simple: we will pay more for the right type of business. Having the latest loan intelligence data at hand helps us to make those loan funding decisions with confidence.”
“Today, over 1,000 automobile dealers are now authorized to request loans from General Bank, and loan funding is expected to top 1 billion dollars by the end of 2012.”
The turning point: Analytics becomes mission critical in 2008
In 2008, at the height of the financial crisis, General Bank installed Portfolio Plus Prospector. After building a set of standard reports, it was able to identify and reengineer the way it managed its credit risk.
“Today we’re very sensitive to all of the trends visible in our portfolio,” says Mooney. “We regularly review default characteristics, loan duration, risk grade performance, and more. But that wasn’t always the case. 2008 was a real turning point. Once we dove into our data, the results were clear and actionable. We immediately improved our credit performance and lowered our credit losses—easily the most critical elements in managing a loan book.”
Loan Funding sources as a competitive advantage.
The 2008 global financial crisis created a liquidity challenge for all deposit taking institutions. General Bank found itself paying more for deposits, and competing against non-traditional players in the brokered deposit channel. It was clear that the bank needed to diversify its funding sources in order to stay competitive.
“In the beginning, we raised funds solely from independent deposit brokers,” says Mooney. “These brokers remain an important source of funding, but since signing on to the CANNEX Financial Network we’ve been able to access a much larger pool of funds, typically at lower rates of interest and with substantially less effort. We can raise several million dollars in a single day, at the push of a button. Saving time and effort and reducing our overall cost of funds is helping to make us more competitive in the loan market place.”
“The CANNEX Financial Network has become an increasingly important source for raising funds for Canadian financial institutions. In 2012, the CANNEX Financial Network processed over $42 billion in term deposits with over 52 term deposit issuers, many of which are Portfolio Plus users.”
Spotting troublesome business.
Using Portfolio Plus Prospector, General Bank was able to spot problematic business with loans that were paying out early. Loans that pay out early in their life are very costly, due to the up-front cost associated with acquiring the business.
“Analytics helped us identify a couple of dealerships that would sign up a customer for a loan, get the commission for that loan, and then have the customer pay off the loan right away,” says Mooney. “Without our analytics it would have been much harder to spot this pattern. The result was that we could have a constructive conversation with the dealer, and agree that going forward the business we obtained had to be a win for the dealer, the consumer, and the General Bank.”
Interest rate risk management.
An auto loan portfolio behaves differently than a mortgage book in that many auto loans are paid off before reaching full maturity. People trade their vehicle in or sell them before their loan term is up. Data produced from Prospector helped the General Bank identify the precise portion of the loan book that was paying out early, allowing the bank to re-price its loan book more quickly than a regular amortization.
“Getting at our cashflow data helps us to know how much to raise in deposits and under what terms,” says Mooney. “As an example, let’s say we have a $1 million loan book and we are expecting 16% to pay back in year one, 19% in year two, and so on. Traditional interest rate risk management means that we would go out and raise deposits to match the expected pay down of the loan book. But because we know the percentage of loans that we expect to pay out early, we are able to adjust our deposit raising activity to more accurately reflect how the book actually behaves. What that means is that some of the 5 year loans will never have to be matched. Instead, the amount paid out moves into the year in which payout occurred, allowing us to match with lower cost, shorter term deposits.”
“If we didn’t have easy access to the right cashflow data, we’d be over-raising 3, 4, and 5 year deposits, which would cost us much more in the long run,” Mooney says. “So, for example, instead of raising $150,000 in year 5, we only need to raise $50,000. The savings amount to as much as 70 basis points on the amount that shifted from 5 years to the shorter terms.”
The new outlook.
Currently, General Bank is implementing a Portfolio Plus interface to Dealer Track’s Dealer Management System in the expectation of being able to significantly raise loan origination volumes with the same staffing levels.
“As we continue to grow, it is critical that we look at ways to become more efficient through the effective use of technology,” says Mooney. “We think the Dealer Track interface will do for us on the loan side what the CANNEX interface did for us with deposits.”
“We look forward to continue to expand our territory coverage,” says Gord Mooney. “But we’re in no rush to do so. We want to ensure that we continue to do the right type of business for the right price.