Increasingly, regulators are placing emphasis on automation and computer support for the risk management of commercial loan portfolios. Some of the features they expect to see at banks they are examining include:
- 1. Comprehensive portfolio risk reporting. That is, an automated process for preparing standard risk management reports such as watch lists, delinquency reports, stress test reports, trend analysis, missing or out dated information, etc.
- The ability to slice and dice the portfolio — the ability to quickly and easily prepare reports that evaluate the portfolio based on factors such as loan type, collateral type, loan officer, region or market area, and numerous other parameters.
- Portfolio Stress testing — the ability to stress items such as collateral income, collateral value, borrower income and expenses, increases in interest rates, and other factors to determine whether loans are strong enough to withstand the stressed conditions.
- Loan Rating Migration — how have loan grades changed over time. Is the distribution of ratings over time is an important measure of the credit quality of the portfolio as seem by bank management, and has important implications for the allowance for loan losses.
- Automation of the Loan Review process. In the past Loan Review Departments captured the results of their analysis on paper forms that made it difficult to then prepare reports that summarize the results of their analysis of a portfolio. Hand entry of data is also inefficient since much of the information about the loans is already in the bank’s core system.
The Madison System includes comprehensive support for these and many other features requested by regulators. The trick for banks is to be able to create the necessary information, analysis and reports with a minimum of effort so. A fully automated system for doing so is often the best solution.