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Loan review: Continuous monitoring vs. targeted monitoring

Mary Ellen Biery
April 21, 2023
Read Time: 0 min

Focus loan reviews on risk in the portfolio

Continuous loan review monitoring helps banks and credit unions ensure credit review systems support safe and sound lending.

You might also like this webinar, "Return to basics: Asking the right credit risk questions."


Identify targeted loan exams

What is continuous monitoring for loan review?

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.

Kent Kirby


“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.

Benefits of loan review

Why use ongoing loan review results

As noted above, some financial institutions utilize an ongoing process for monitoring credits as a screening method to narrow down and prioritize the pool of loans that will be targets of exam reviews. As they perform targeted exams, loan reviewers routinely select from the bank or credit union’s pools of new loans and loans exceeding a specific size. But some loan reviewers worry that sampling only these categories might leave important gaps. By conducting limited credit assessments before making selections for a targeted review, staff can uncover credits that infrequently get selected for a loan review exam but nevertheless might pose a potential, immediate risk to the institution.

Kirby said another benefit of continuous monitoring is that it could lead to more interaction with loan officers and others in credit — a plus as more banks and credit unions move to remote work. Improved communication helps more people understand the role and importance of the loan review process, he added.

“In my day, you had to go out and look loan officers in the eye to conduct a loan review,” he said. “Now you’re in your cubicle with your work and your pictures of your kids, and you can just do the review.”

Regulators have highlighted the importance of credit risk review to provide ongoing feedback on lending processes and support accurate estimates for the allowance for credit losses (ACL) or the allowance for loan and lease losses (ALLL).

As stated in the 2020 Interagency Guidance on Credit Risk Review Systems, an effective credit risk review system:

  • Provides for the review and evaluation of an institution's significant loans, loan products, or groups of loans
  • Provides this review and evaluation typically annually, on renewal, or more frequently when internal or external factors indicate a potential for deteriorating credit quality or the existence of one or more other risk factors
  • Can provide useful continual feedback on the effectiveness of the lending process to identify any emerging problems

In addition, the guidance says, “Ongoing or periodic review of an institution's loan portfolio is particularly important to the estimation of ACLs or the ALLL because loss expectations may change as the credit quality of a loan changes.”

How to identify credits for continuous monitoring

Identifying loans for limited reviews typically incorporates information and resources outside of financial statements. Credit review staff at the conference said they often leverage line-of-business data, external data, conversations with partners across the enterprise, as well as loan review software in their efforts. Loan review experts said they might review exception reporting on loans above a specific size, market assessments, demographics, and trend data to identify potential, immediate threats.

A survey-based workflow works well for some institutions to help reviewers quickly determine whether the credit looks good or needs more work.

One conference attendee described how such a workflow provides a first pass at loans. The survey asks a loan reviewer about various details, such as the age of the latest business financials, and the answers move them through a decision tree. Credits needing additional scrutiny receive targeted reviews involving deeper dives into the underwriting as well as regulatory and policy compliance. Meanwhile, those that don’t require a full review are still studied.

"Narrowing the potential pool for targeted reviews helps...recognize immediate threats."

Narrowing the potential pool for targeted reviews helps the team recognize immediate threats and assess underlying risks on a larger population of loans without respreading each loan’s financials as part of a full review.

“It speeds things up,” Kirby said.

Other loan reviewers said they perform continuous monitoring within specific segments, such as consumer or commercial real estate. To do this, they might review regional data to understand market issues and help them decide on particular property types, such as hospitals, rent-to-own properties, or hotels. Or they might target loans with heightened interest rate risk, such as construction loans. This form of ongoing review helps identify slices of loan portfolios where they need to either dig in with a full review or examine additional metrics, such as exception frequency and changes in how loans are risk rated.

Loan review reports

Reporting continuous credit review results

Kirby said outcomes of continuous loan review and targeted exams should be treated separately in reporting because of their different roles and activities. In some ways, he added, continuous monitoring is to credit risk review like a grand jury is in the criminal justice system, while targeted reviews are like a trial jury, he added.

“For continuous monitoring, like a grand jury, you’re not trying to convict. You’re just seeing if there’s enough evidence for a trial,” he said. “Targeted reviews are where you have the jury trial.”


Therefore, a loan review report for targeted loan reviews will be more detailed than those related to continuous reviews.

Watch a video on how loan review helps financial institutions achieve growth goals.

Participants at the Loan Review Practitioners’ Forum said they have been able to use insights gleaned from continuous monitoring results to provide additional credit risk management information to their financial institution management and directors. Suppose the results describe emerging risks that might need to be addressed at a broader level, such as absent appraisals, other collateral-related issues, or a change in ratings. In that case, credit administration and others can be brought into the loop so they can act.

Challenges and solutions

 As it does with targeted reviews, inaccurate data, insufficient data, or difficult-to-access data can make continuous monitoring challenging. Having all booked loans on a loan origination platform offers loan review analysts functionality that can mitigate or eliminate those difficulties. A loan origination system (LOS) can also provide insight into unbooked loans in the pipeline. Once a loan is booked, the data is accessible in the loan review software, and loan review can easily create a sample based on the institution’s credit policy.

 Staffing can also be a challenge for loan review teams that monitor credits on both a targeted and continuous basis. Automation can help here, too. Loan review software makes tracking productivity among teams, geographies, and other factors easier and more efficient. In addition to providing more efficient credit risk review, a loan review solution can provide other analytics to elevate loan review’s profile or support staffing requests.

Whether institutions use current or expanded staff, technology, or both, continuous monitoring allows the credit review function and institution to adjust reviews based on evolving risk.

Learn more helpful information in this on-demand webinar, "Create and maintain a successful loan review function."

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About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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