Covenants play a pivotal role in credit risk management within the intricate landscape of commercial lending. However, monitoring these covenants poses significant challenges for many banks, often involving labor-intensive and costly manual processes. Regulatory mandates, such as those prescribed by the European Banking Authority (EBA), further heighten monitoring obligations for financial institutions, necessitating continuous assessment of loan risk positions. In this inaugural installment of our ‘Business Solutions in Banking’ series, we explore how covenant monitoring can be efficiently and securely implemented within a modern business application on a banking platform.
Covenant tracking or management is just one of numerous use cases where banks seek solutions that harness processing capabilities while meeting today’s and tomorrow’s risk management standards. A customizable covenant tracking software solution empowers experts to streamline processing, collaboration, and data utilization for enhanced customer insights. A modern covenant application not only mitigates credit default risks but also addresses comprehensive documentation requirements with transparent decision-making processes.
Challenges in Compliant Covenant Monitoring
Recurring monitoring tasks pose significant challenges for middle- and back-office units due to their time-consuming and error-prone nature, often stemming from manual processes and a lack of system support. Many financial institutions rely on simplified database solutions or manage covenants through unstructured documents, raising concerns regarding audit security and regulatory compliance, while also hindering automation potential.
The absence of system-supported resubmission concepts often leads to inflexible processing, unable to adapt to interim events like temporary commitment suspensions. Despite the standardized structure of monitoring declarations, formal and material checks are typically conducted manually by experts.
Furthermore, the lack of data structure and mastery prevents contextualizing business information for insights and cross-selling purposes. Regulatory requirements, such as those outlined by the EBA, emphasize the need for close communication between relationship managers and customers during monitoring, posing challenges for operationalization and documentation. Implementing monitoring capabilities within customer portals could streamline the process, enhancing the customer experience and potentially encouraging greater portal utilization by professional clients.
Implementing Risk-Relevant Use Cases With a Banking Platform
The financial banking platform offers a pre-configured digital expert workspace for conducting operations like covenant monitoring. Utilizing existing modules and curated tools, the necessary business logic can be swiftly and securely implemented, with the flexibility to be extended or adapted as needed.
Aggregate Data, Gain Insights
Utilizing a domain-driven data model, covenants are integrated within the broader context of applications, product agreements, and customer relationships, enabling structured data organization and the extraction of valuable customer insights. This approach not only enhances sales strategies by identifying financing opportunities but also strengthens early risk detection capabilities.
Automating Business Processes
The curated technology on the platform facilitates the automation and streamlining of various business processes, including data capture, request creation, task assignment, and expert enrichment. Users are promptly notified of pending tasks, while event-triggered escalations ensure timely action based on due dates or predefined business rules.
Transparency for Customers and Supervisors
The platform ensures transparency for both customers and supervisors by logging all interactions, enabling verification of decision inputs in alignment with compliance and regulatory requirements. Process status and SLA conformity can be accessed at any time, while providing business data to the customer portal enhances the customer experience with real-time status updates. Additionally, the platform seamlessly captures business data uploaded via the customer portal or other channels such as mobile apps or third-party platforms.
Conclusion
Utilizing a banking platform, intricate and risk-related scenarios can be efficiently and securely implemented, catering to various functional and recurring tasks across all departments. This alleviates experts from mundane duties, accelerates processes, reduces transaction costs, and enhances the customer experience, all while bolstering audit security and early risk identification.
We are enthusiastic about offering our platform and expertise in crafting tailored software solutions for financial institutions. As your trusted advisor, we are committed to facilitating the digital transformation of your retail and commercial lending business.