Benchmarking as a Tool for Providing Analytical Support to Mortgage Lending Operations of a Bank

O. B. Hamkalo, PhD in Economics, Associate Professor of the Department of Accounting and Audit, E-mail: virgo.helena9@gmail.com ORCID: https://orcid.org/0000-0001-6078-7990; Kh. S. Demkiv, PhD in Economics, Assistant of the Department of Accounting and Audit, Е-mail: kris.demkiv@gmail.com ResearcherID: L-3067-2017; ORCID: https://orcid.org/0000-0001-9732-8966; Ivan Franko National University of Lviv


Benchmarking as a Tool for Providing Analytical Support to Mortgage Lending Operations of a Bank
The essence of benchmarking is investigated and questions of its organization in the course of mortgage lending operations in the bank are considered as one of the most effective modern tools for improvement of work and achievement of competitive advantages in the field of mortgage lending .
Taking into account the specifics of banking operations in the banking sector, benchmarking can be considered as a process for comparing the Bank's services and business processes with the products of services and business processes of leading banks, best lenders, partners in order to borrow better practices in mortgage operations and their adaptation for obtaining competitive advantages in the market of mortgage banking services .
The classification signs of benchmarking of mortgage lending are singled out and systematized, which will enable the management of banks to purposefully apply the methodology of studying and introducing the positive experience of competitors, partners and other organizations, as well as promoting the innovative development of credit organizations, and in the future, specialized mortgage banks in Ukraine .
It is determined that the choice of the type of benchmarking depends on: the goals, goals and objectives set by the banks; ability to obtain the information and analysis necessary for comparison; the necessary financial, human resources, information, technological and other resources, as well as the experience of the workers and the time required for its implementation .
In order to improve the process of mortgage lending, the Bank proposes the following procedure for the introduction of a benchmarking procedure: the identification of areas to be improved, that is, objects of benchmarking, based on the results of the analysis of the state of mortgage lending in a bank; definition of the basic criteria of comparative analysis; search for benchmarking benchmarks; collection and processing of information; development of recommendations and their introduction into the policy of mortgage lending in the bank; monitoring and control over the implementation of decisions on problem solving . This creates the preconditions for using the positive experience of leading banks in the field of mortgage lending and forms the appropriate principles for developing a strategy for further development of the bank .
It is substantiated that the use of benchmarking in the activities of banks in relation to mortgage lending is a powerful tool in the context of global competition, and its implementation in the organization of economic analysis of mortgage lending operations of banks will allow for a higher level of application of mortgage opportunities .
Key words: bank, benchmarking, operations of mortgage lending, competitiveness, efficiency. Mortgage lending is a method for accumulating financial resources, an effective instrument for banking and an important factor for economic development of a country . High efficiency of mortgage lending results from complex and multifaceted processes influenced by internal and external factors . Small amounts of mortgage lending in a bank signal on inefficient management, limited capacities for development, weak competitive advantages and increased exposure to risks . These negative tendencies may cause serious problems in the operation of banks related with mortgage lending, and delayed actions may even cause the bankruptcy . Bearing this in mind, the bank operation in mortgage lending must feature a sufficient level of efficiency, which is important given the tough and constantly increasing competition and © O. B. Hamkalo, Kh. S. Demkiv, 2019 instability of the markets providing bank products and services .
For each bank it is critically important to be competitive and operate efficiently by resisting competitive pressures . One of the most efficient and advanced instruments capable to improve the bank's operation and enhance its competitive advantages is benchmarking, a set of tools for regular assessment of positive experiences of other banks with leading positions in the sector, and to employ them in the bank operation .
Benchmarking has been studied by many foreign researchers: G . Watson [12], P . Kotler [5], N . Lake [6], R . Reider [8] and others . Of the Ukrainian researchers, issues of benchmarking have been analyzed O . Shchehelska [11] and H . Kindratska [4] . For the domestic banks, benchmarking is one of the novel methods for efficiency enhancement and improvement of bank operations . Now this method is being introduced in Ukraine, although in developed countries it has already established due to government support .
The article's objective is to explore the benchmarking essence and justify its arrangements for purposes of mortgage lending in a bank, and to determine benchmarking effects for the portfolio structure and overall performance of a bank .
In the English-Ukrainian glossary of economic terminology, benchmark (a level mark, a starting point, a base, a criterion) is interpreted as a base point by which the standards for comparisons of efficiency, productivity of products, services, advertizing actions, computer devices or software packages are fixed [10, p . 52] .
P . Kotler gives the following definition of benchmarking: the process of comparison of goods and business processes of a company with the processes of competitors or leading companies in other industries, to search ways for enhancing quality of these goods and the company operation efficiency [5, p . 244] .
According to G . Watson, benchmarking is the process of regular and continuous measurement: the assessment of company's processes and their comparison with the processes in companies leading worldwide, in order to produce information useful for improving one's operation [12, p . 27-31] .
R . Reider defines benchmarking as the continuous process of analysis and comparative assessment of ways and methods used by a firm to perform its functions . This assessment can be conducted inside a company by comparing the work of selected employees and units or by confronting its operation and results with the operation and performance of other companies [8, p . 7] .
National researchers, while accepting bechmarking interpretations given by their foreign colleagues, offer their own definitions . According to H . Kindratska et al, benchmarking is a way for the continuous assessment of the organization's strategies and objectives, in order to implement the principle "the best makes it better" . The following issues are investigated for this purpose: what organization is on the top of competition; why an organization is not the best one, and what needs to be changed in its operation; how the existing strategy has to be adjusted, to make an organization the best of the best? This raises the need to adapt management methods of other organizations with successful operation, and to strengthen weak sides of one's organization [4, p . 19-24] .
Summing up the above definitions in the context of this study, it can be argued that benchmarking involves analyses and comparisons of indicators in one's bank with indicators of other banks (competitors or leaders), on the one hand, and investigations and implementations of successful practices of other banks, on the other hand . It follows that benchmarking of mortgage lending in a bank covers, first, comparisons of one's indicators of mortgage transactions with indicators of other banks (competitors or leaders); second, studies and implementation of successful practices of mortgage lending in one's bank [2, p . 26] .
The increasing competitive pressures in the bank sector calls for in-depth analyses of competition . The intensity of innovation processes specific to the bank sector raises the need and importance of benchmarking applications by Ukrainian banks, to enhance their competitiveness and efficiency . Considering the peculiarities of mortgage lending transactions in the bank sector, benchmarking should be interpreted as comparisons of products, services and business processes in one's bank with products, services and business processes in leading banks, best lending institutions, partners, in order to adapt best practices in the bank sector and adjust them for gaining competitive advantages on the mortgage segment of the bank market .
The principal tasks of benchmarking applications for enhancing quality and efficiency of mortgage lending are as follows: 1) to analyze one's operation in the mortgage lending segment . A bank that uses benchmarking has to assess its weak and strong sides when performing mortgage transactions, to analyze important components of costs, to take account of client complaints, to identify the aspects of mortgagerelated activities requiring improvements; 2) to identify the banks that are leaders and competitors in the sector . When using benchmarking, the best of the best needs to be found out; 3) to identify "the best of the best" . Processes enabling to achieve the best results by the reference bank need to be scrutinized . It means that a bank seeking for highly effective mortgage operations and adapting leaders' practices has to determine their current performance characteristics, to assess future tendencies in their development and investigate their operation methods and approaches to efficiency enhancement . 4) to gain advantages . A bank using benchmarking seeks for best results and advantages compared with the leading bank .
Having outlined the principal tasks of benchmarking, we are going to consider its main principles . G . Watson highlights them as follows [12, p . 28-29]: 1 . Reciprocity . Benchmarking is an activity based on reciprocal relations, agreement and data exchange, to create the situation that is favorable for each party . It is involves agreement on the range of data, data exchange procedures, the logic of study . In a benchmarking consortium, any partner needs to have guarantees of other's behavior, and the overall positive result will be guaranteed only when all the parties observe the rules . Everything needs to be defined and agreed upon in advance .
2 . Analogy . Оperation processes of the partners must be analogous . Any process can be assessed and, hence, translated into the cultural, structural and business context of an organization . The analogy of processes and criteria setting by the benchmarking partners determines the overall success of the action .
3 . Measurability . Benchmarking is a comparison of characteristics measured on several business entities, to find the reasons for variations in the characteristics and achieve the best level . It is believed that the most important thing is to find the key characteristics of the process, which allows for their improvement by way of scrutinizing the process . 4 . Reliability . Benchmarking needs to be performed by use of actual data, accurate analysis and scrutiny of the process, but not only by intuition .
Benchmarking is an integral part of planning, review and assessment (i . e . monitoring) of the mortgage transactions process . It ensures concentration on the external environment and use of actual data when making plans . Benchmarking is used to improve the operation through understanding methods and ways of actions required to achieve the world-class efficiency . Because the principal task of benchmarking is to identify methods (instruments) providing for the competitive advantage, the goal of benchmarking in the mortgage-related activities is to define and use the best of them on the mortgage market .
Benchmarking can be focused on various aspects of bank operation, and it can be performed both inside and outside a bank . But the large number of its types complicates its application procedure in the bank sector . Therefore, principal classification criteria of benchmarking in mortgage lending need to be systematized and classified (Table 1, summarized by the author on the basis of [1; 3; 6]) . Strategic benchmarking in mortgage lending can be performed in time of strategic planning, to adapt best experiences in formulating the goal and tasks for future . The correctly used best practices in task solving and alternative options of detailed analysis of the required information on short-term solutions will help perform operative benchmarking . The reference for strategic and operative benchmarking for banks can be leading banks in mortgage lending, potential and real banks-competitors or any other organizations taking the lead in mortgage activities, which are of strategic interest for the bank management .
By area of comparison, there can be internal and external benchmarking . The former involves comparisons of quality, contents and efficiency of the operation of mortgage units of a bank . Objects of internal benchmarking can be bank's departments, affiliations or branches . When a bank has a wide-scale network of affiliations, the operation of affiliations should be compared with the reference one . Internal benchmarking can be used as an instrument for continuous improvements in bank's operations on mortgage lending, and studies performed as part of internal comparison can form the information base for further more extensive external benchmarking .
External benchmarking is performed through implementing successful ideas and developments in various segments of the bank operation . The competitive, branch and inter-branch types of external benchmarking are distinguished . Competitive benchmarking is performed though testing of successful experiences in mortgage transactions in banks-competitors; it is intended to identify critical areas of mortgage activities and rank by priority the actions taken to improve them . An essential drawback of this type of benchmarking is believed to be complexity of the data collection process . Using branch benchmarking, a bank can take advantage of the experiences of companies in insurance, consulting, audit or investment; it means that this is a comparison of business entities engaged in mortgage lending, but not in direct competition with each other . Branch benchmarking enables to find the tendencies specific to mortgage lending in the banks, in order to make the best possible use of them in one's bank . The advantages of this type of benchmarking are free access to information and analogy of technologies used in the study . The goal of inter-branch benchmarking is to improve bank's operations in mortgage lending using the best experiences of banks in other categories of lending operations .
When deciding about the type of external benchmarking, a bank has to take account of many factors . If the strategic goal of a bank is in improving its competitive positions on the mortgage market, the competitive benchmarking should be used, but if the bank's goal is to become the best in the sector, then branch benchmarking will be required . Banks seeking for the best performance and continuous improvements in the mortgage lending process will need to make comparisons with organizations that are the best in their class . One option is to perform comprehensive benchmarking combining the components of all the types of external benchmarking .
By benchmarking object, the types of benchmarking can be as follows: Benchmarking of mortgage units; benchmarking of client service quality; benchmarking of information systems; benchmarking of mortgage lending transactions . The indicators of mortgage lending, which should be compared, are as follows: financial indicators of operation in mortgage lending; indicators of client satisfaction; quality of services; innovations and introduction of advanced technologies; level and means of security in time of mortgage lending .
Process benchmarking involves investigations of the processes in the organizations that have gained best results in these processes' structuring and optimization . This type of benchmarking has one peculiarity: by performing it, banks can refer to organizations in other economic sectors .
The essence of functional benchmarking is that functional characteristics of a bank are compared with analogous characteristics of the banks operating in the similar conditions . The single compared parameters can be cost-efficiency of mortgage lending, costs of mortgage lending or level of risk . The group parameters of functional comparison can be quality management of bank product .
Use of benchmarking to assess mortgage lending of banks is a powerful tool in the conditions of global competition . Identification and grouping of benchmarking criteria for mortgage lending enables bank management to apply purposefully the method for analysis and implementation of positive experiences of competitors, partners and other organizations, thus promoting innovationdriven development of lending organizations and, consequently, specialized mortgage banks in Ukraine .
As a standard approach to benchmarking has not been created by far, researchers offer various methods for its performance, which differ from each other by number and content of phases . Basically, the benchmarking process in mortgage lending involves several sequential phases (Figure 1, systematized by the author on the basis of [1; 3; 6]) .
At the first phase, the state of mortgage lending in a bank is analyzed, with outlining the segments that require improvements . This phase involves scrutiny and analysis of mortgage lending components (mortgage housing lending, mortgage industrial lending, mortgage of land, agro-industrial mortgage, mortgage consumer lending), with identifying its types and indicators requiring improvements, which will be objects of benchmarking, and factors with impact on their functional capabilities . Because benchmarking is time and resource consuming, it is important that objects of benchmarking should be prioritized .
The second phase involves setting of main criteria by which a comparative analysis will be made, with selecting quantitative and qualitative indicators by which benchmarking of mortgage lending will be performed .
The third phase involves selecting of leading banks for performing benchmarking . Reference banks can be selected by various methods: from questioning clients or intermediaries about who they believe to be one performing mortgage functions best, being more successful in this activity, to scrutinizing information releases or ratings . Apart from banks-competitors and organizations or companies that operate in the similar area but do not compete with one's bank, references can also be organizations operating in other areas .
Comparison with a reference bank enables to find out the reasons for inconsistencies in some segments of mortgage operations and help eliminate them through analyzing the results of a comparison of one's operation with the operation of leading banks .
The fourth phase involves collecting information about the bank that is the object of comparison, with outlining sources and methods of data collection . Information sources for benchmarking can be: statistical data and material from reports of public administration bodies; publications in periodicals, first of all in specialized journals, newspapers, and news released in other mass media; annual reports on bank activities; -advertizing booklets; -analytical reports of companies engaged in studies of markets (industries) and monitoring of their development trends; analytical comments and forecasts of experts .
The fifth phase involves the information processing, with scrutinizing, systematizing and analyzing the collected and checked information . After that, it is important to find variations in the mortgage lending efficiency: what is done better by reference banks and to what extent .
The sixth phase covers elaboration and implementation of recommendations on bridging or eliminating the abovementioned gaps . By the results of the analysis, measures and actions to solve principal problems and achieve the benchmarking goals should be elaborated .
The seventh phase is the phase of control over the implementation of the recommendations and monitoring of the results of implemented decisions on problem solution and efficiency enhancement . The purpose of monitoring and control is to check the achievement of goals and problem solution .
A bank intending to elaborate an effective policy for mortgage lending and create its implementation mechanisms needs to take account of change in the external environment and perform a careful analysis of the types and quality of mortgage lending services on the market .
A bank can strengthen its competitive position on the market, expand its client base, increase the client satisfaction and trust, and improve the overall reputation . This strategy of benchmarking will help solve the principal problem: to justify the ways of improvements and efficiency enhancement in mortgage lending of the bank .
If a benchmarking object is the mortgage lending process, i . e . the services involved in mortgage lending, it is important to select the indicators for comparison . For this, it is necessary to find out what is the most important for the clients: value of a service (interest rate, commission or insurance of a loan); -duration of service (time span between the submission of application and all the required documents to obtain a loan and taking the positive decision on the loan and obtaining the loan); convenience of service (computerization of processes involved in servicing of mortgage loans); wide range of choices in mortgage lending; -organizing structure of the lending department and the position of mortgage lending in it; coverage of a region by the network of branches authorized to accept applications and provide mortgage loans .

Figure 1. Benchmarking phases in mortgage lending
The parameters and indicators commonly used for comparisons include: financial indicators of mortgage operations; client satisfaction; quality of services; use of advanced technologies and innovations; level and means of security when providing mortgage lending services . The indicators for comparison must be specific and clearly defined: for example, the share of obtained mortgage loans in the total lending; the number of skilled personnel; the average duration of service .
Benchmarking includes analysis of the bank's internal environment . A bank with the well established and efficient object for study, i . e . mortgage lending, should be selected .
Information is central to benchmarking of the bank operation, because any study is based on understanding of a specific situation established on the market and inside the bank . A study of competitors for benchmarking purposes is a difficult matter, because if even the indicators by which a bank-competitor could achieve best results were defined, it would be hard to find out what exactly promoted its high efficiency . Therefore, all the available methods for collecting this information should be employed, which will enable to accumulate large scopes of data and extract the ones that will be most useful for the study .
The obtained information can be divided into internal and external one . The internal sources of information for benchmarking include: statistical reporting; accounting statements; reports on lending . Methods for collecting external information involve the following sources [1; 3; 6]: partners, former clients; -mass media (newspapers, journals, annual reports of banks; TV and radio programs); personal contacts with clients; -information exchange with directors and officials of other banks; -presentations, conferences; -interviews, questionings; -obtaining of required information in specialized organizations; -Internet resources; -Method "Secret buyer" . An important source of information for benchmarking is partners, intermediaries and clients, as they are interested in the efficient operation of a bank and expansion of business relations . A freely available source of information is publications in newspapers and journals, web sites, proposals, tariffs and advertizing actions of reference banks . One of the most effective ways of benchmarking study, although the most sophisticated one, is to obtain information from contacts with directors and officials of a reference bank; important information comes from presentations or conferences of professional associations . For example, quality standards for mortgage operations of the banks in Ukrainian are set by the National Mortgage Association, the Association of Ukrainian Banks, the USAID Project "The Development of Financial Sector", which sponsored the round table "The Mortgage Market in Ukraine: State and Development Problems", etc .
The method "Secret buyer" is assessment of the client's consumer experience in time of his/her visit to a bank office or call to a client center . Information is collected by use of experts (secret buyers) who check the quality of services as potential/real clients . This method can be used by bank management in a dual manner, i . e . first to check the quality of services in their own bank and after that to check the quality in the reference bank, with comparison and analysis of the results . This study allows the banks to be aware of the client satisfaction . Results of the study will help control the observance of service standards, motivate the personnel, study "zones of growth" for the staff, in order to elaborate measures on enhancing the quality of services .
All the methods for collecting information are significant, but a critically important thing is that the collected information should be relevant and useful for further analyses and applications .
Once the information is collected, it needs to be analyzed, with making conclusions and taking effective decision aiming to bridge the gap between the bank performing benchmarking and the reference bank . This will be followed by implementation of recommendations, actions and decisions elaborated in course of benchmarking .
Results of the use of benchmarking in mortgage lending are illustrated in Figure 2 (systematized by the author on the basis of [1; 3; 6; 9]) .
Benchmarking of mortgage lending may fail to produce expected results in view of the reasons that need to be taken into account when taking the decision on organizing its procedure . The first reason for failed benchmarking is in ignoring its principles and method . Change in the sequence or contents of benchmarking phases may increase the costs and duration . The second reason is difficulties with search and collection of information . Important and relevant information is a strategic source for the successful operation of a bank, and closed nature of bank's technologies and innovations is a key to its leadership in mortgage lending . The third reason may be cost or time consuming nature of benchmarking, when the costs incurred cannot be compensated by the results of its implementation . It, therefore, requires preliminary arrangements that help in careful planning of the benchmarking phases and their costs, and in predicting the result . The fourth reason of failures is wrong selection of a reference bank or successful practices . Technologies, strategies and developments that are effective in a reference bank, can prove to be ineffective or failing in another bank due to its specifics, structure or strategy . Bearing this in mind, all the specifics need to be considered when performing benchmarking .

Figure 2. Illustration of the effects from use of benchmarking
Benchmarking is useful whenever the internal efficiency of the bank operation needs to be reviewed and new priorities must be set . A comparison of performance indicators enables for grasping weak and strong sides of mortgage lending in a bank relative to the competitors and global leaders in this sphere . Benchmarking, therefore, is capable to increase the profitability and cost-effectiveness of a bank, create the useful competition and meet the borrow needs .
To sum up, the principal purpose of benchmarking of mortgage lending in the banks is to create the analytical base for information support to management decisions on its wider use and optimization . This goal can be achieved by solving the following tasks: -identify the banks that can serve as reference ones in mortgage lending; -create a set of indicators measuring the mortgage; -define the optimal structure of credit portfolio; -find the ways for extending and improvement of mortgage lending; -elaborate recommendations on improvements of mortgage lending in a bank .
The applications of benchmarking procedures are discussed and its instruments are adapted to bank practices, which creates the background for using positive experiences of leading banks, competitors and partners of one's bank in mortgage lending . The following algorithm for the benchmarking procedure implementation is proposed: to outline the areas requiring improvements, i . e . benchmarking objects, by use of results from the analysis of mortgage lending in a bank; to set the main criteria for the comparative analysis; to select reference banks for benchmarking; to collect and process information; to elaborate recommendations and implement them in the mortgage lending policy of a bank; to conduct monitoring and control of the implemented decisions on problem solution . This will lay the necessary grounds for elaborating the bank development strategy . Benchmarking of mortgage lending can be used by specialized and all-purpose banks engaged in mortgage lending .
Further studies should be focused on applications of benchmarking in management review .