Wolters Kluwer Compliance Solutions Offers Insights on Managing Risk Appetite

Automation tools help lenders identify areas of portfolio risk

Risk officers arguably hold a more perilous responsibility than perhaps anyone else in a commercial lending organization, as they are accountable for providing input on key risk decisions, tracking risk across multiple business lines and underwriting compliance with their institution’s risk appetite statements and policies. But research shows that inside virtually any lender’s loan portfolio, there are enough unperfected liens to have devastating effects for their organizations.

“Determining what tools and capabilities can be added to one’s lending operations and risk management areas can go a long way in helping lenders capture insights into their loan portfolios and create a RAS structure for managing those assets more effectively.”

If potentially problematic issues are identified well before they negatively affect one’s overall loan portfolio risk exposure, such transparency could make a huge difference in bolstering an institution’s lines of defense.

So argues Suzanne Konstance, Vice President and Lien Solutions Leader, Wolters Kluwer Compliance Solutions, in her recent, two-part series published in ABF Journal on effective lien management and its role in helping lenders improve their risk management processes and portfolio performance. In “Picking the Right Technology for a Bullet-Proof Risk Appetite Statement,” she shares specific examples of data variability and how advances in technologies such as artificial intelligence are ushering in a new era of data transparency and access to lien and debtor data.

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“Data that can help better calculate secured lending risk exposure is not only available, but easy to understand when it’s filtered through the right lens. AI and other automation tools in particular make up some of the newer and evolving technology that is helping to improve data transparency and access,” she writes. “These technologies can help financial institutions better understand the nuances of their secured position and empower them to make more informed decisions. From loan operations to the chief risk officer, it’s easier to have the data that matters most in today’s environment than ever before.”

Konstance cites some of the ways in which unperfected liens “can taint a lender’s portfolio,” and presents a series of questions to help lenders identify those issues and get them to the root of a more effective lien management approach in their institution.

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“Lien management affects a financial institution’s risk profile in a significant way and, accordingly, should be a part of a risk officer’s daily agenda,” she argues. “Historically, liens have been viewed as binary, i.e., they were considered to be either secured or unsecured, so the complexity that exists with liens was not even on lenders’ radars. But locating the loan review process within a bank and seeing how lien perfection is managed can provide useful insights about how and where a bank is vulnerable to risk.”

Her insights center on ways that lenders can tap new levels of data transparency, providing timely and meaningful access to critical lien and debtor data.

“Overall, lenders benefit from greater transparency and automation in helping manage this risk,” Konstance concludes. “Determining what tools and capabilities can be added to one’s lending operations and risk management areas can go a long way in helping lenders capture insights into their loan portfolios and create a RAS structure for managing those assets more effectively.”