ooking Glass Standardization. It will be crucial moving forward that banks standardize their lending processes across all commercial loan disciplines. Technology has evolved that aggregates data into one system of record for the lending area, similar to what the core processors provide. Lenders can now obtain, for the first time, a clear view into the risk that lies across all loan disciplines, and down to the individual loan level. Examiners will be specifically looking to see that banks are breaking down data silos and taking advantage of technology to put a repeatable process in place for identifying risk and uniformly managing all of their loans, from origination through payoff. Visibility. Examiners will expect banks to have greater visibility into each loan so that they can take a more proactive approach to each borrower relationship. The only way to really evaluate risk is to get a complete picture of customers at macro and micro levels; some may no longer fit the bank’s risk profile and actions need to be taken to make them a better fit. Lenders also need to be able to see the overall risk make up of their portfolios in order to identify where they should focus on attracting new borrower relationships. Utilizing advanced reporting and analysis tools, banks can gain the visibility – all the way up to the board of directors – that’s crucial to making sound, profitable loan decisions that will improve the bank’s overall performance. And, it instills confidence in the examiners that the bank truly has a handle on its credit risk. Stress Testing. To really be proactive, banks will need to be stress testing loans at individual and portfolio levels. One of the most compelling advances
in lending technology is the predictive power offered by new risk management tools that provide modeling and pre- and post-approval stress testing capabilities that allow you to avoid potential credit problems well before they become problem loans. If commercial lenders can readily identify problematic loans early on, they have a much better chance of maintaining a healthy asset. Examiners are going to place heightened emphasis on stress testing loans and putting risk rating systems in place that will allow for thorough portfolio analysis. The latest technology innovations enable lenders to look at loan risk overviews by interest rate and risk rating, evaluate risk concentrations and run sensitivity analyses – to actively manage borrowers’ risk.
Take Action Now With the passing of the reform law, we can see where regulators are going to be focusing their attention moving forward, and even though all the details are still being ironed out, commercial lenders have enough ammunition to be able to launch a beneficial preemptive strike. By embracing automation and applying best practices now to some key areas, institutions will not only be able to meet future regulatory requirements for credit risk management with confidence, but also drive more profitable loan businesses. n
Jeffrey Marcotte is vice president of lending strategies at WebEquity Solutions.
First Quarter 2011 | Maine Community Banker
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