Continuous monitoring has been around and discussed for a while within loan review teams at banks and credit unions. However, not all financial institutions have a formal process for continuous credit review monitoring, and those that do may set up the practice differently from their peers.
So what exactly is continuous monitoring within the credit risk review function? Understanding the topic and current industry trends can help institutions meet regulatory requirements for credit risk review systems consistent with safe and sound lending practices.
Ongoing assessments of loans
Continuous monitoring for loan review refers to the practice of conducting ongoing assessments of loans in the portfolio to help create and support a system for independent credit risk review. Limited reviews used in this process can be a means to determine where to do targeted, more comprehensive exams. Continuous monitoring within the credit review process at banks and credit unions also supports appropriate risk communication with the institution’s management and board of directors.
“If you do it correctly, you can shrink your scope size and look at riskier portfolios,” said Kent Kirby, a retired banker with 39 years of experience in all aspects of commercial banking: lending, loan review, back-room operations, credit policy, portfolio management, and portfolio analytics. Now Director of Client Experience at Abrigo and a DiCOM credit quality software expert, Kirby added. “It really helps you focus more on understanding where the risks are in your portfolio.”
At the recent Loan Review Practitioners’ Forum hosted by Abrigo’s DiCOM Software, credit review specialists from institutions across the U.S. discussed how they use continuous monitoring in their efforts to ensure safe and sound lending practices. They also offered advice for developing this practice of ongoing review within an overall review program.