What Regulators Want – Slice and Dice the Portfolio

Our clients are telling us that the regulators are asking them to be able to address three important issues:

• Slice and dice the loan portfolio
• Stress test the loan portfolio
• Maintain a computer based loan review system

 

We have comments on Stress testing before, so today we will address the first of these issues � Slicing and Dicing the Loan Portfolio.

A problem with many cores systems is that they do not capture the data needed to slice and dice the 0loan portfolio. A second issue is that they are often designed to efficiently capture information necessary for the accounting system, not for flexibly reporting on the characteristics of the loan portfolio. A further limitation is that data that is not directly related to issues such as accounting and regulatory reporting is often incomplete or missing.

When clients acquire a system that is capable of slicing and dicing the loan portfolio, they obtain a much more comprehensive and robust view of the portfolio, the first consequence of which is to discover that data in the core system is inaccurate, incomplete or missing entirely. So task number one is to clean up the data, determine what additional information is necessary to support analysis of the loan portfolio, and then get the new and cleaned up information into the system. This can be a formidable task, to say the least!

Once the data is cleaned up, the portfolio can then be sliced and diced by a wide variety of characteristics such as:

• Geography (State, Region, Market, County, City, etc.)
• Lending Office
• Collateral Type
• Industry
• Loan Type
• Department
• Lending Officer
• Loan Program
• Loan Purpose
• Relationships
• Tenant Characteristics
• Occupancy Rates
• Tenants and Tenant Industry
• Loan Rating Distribution (and rating upgrades and downgrades)
• Lots more!

 

Also, it is valuable to evaluate the results of queries such as:

• What is the exposure to the high tech industry both in terms of C&I loan to that industry and tenants in that industry that occupy properties secured by CRE loans.
• Which loans are in a particular market and are secured by a particular property type?
• Which loans have leases that expire in the next few months where the tenants occupy more than a specific percent of the property?

 

Needless to say, all this analysis and much more can be done quickly and easily with the Madison System�s reporting and filtering functionality. But be forewarned, the easier it is to slice and dice the portfolio the more you will find that you are presented with the need to clean up the data on which the analysis is based.