Digital Credit and Lending for Banks, Customers…and Now Regulators
commercial lending banking technology
Posted By: John MacKay
Digital credit and lending has been a key focus for most banks, delivering significant benefits to retail customers and banks themselves. Banks are now starting to address the digital needs of their more complex corporate and business clients and how they can deliver similar results. But what about a bank’s most important non-customer relationship? What about the relationship with their regulators?
A key priority, and major challenge, for bank boards and senior executives is to meet the ever-increasing demands for more detailed and granular data from regulators. Under current legislation, banks need to supply data at forensic and scientific standards to cover legal submissions such as Anacredit, IFRS 9/CECL, and Credit Underwriting history for Asset Quality Reviews.
Regulators are demanding banks provide concise, detailed reporting on credit decision exceptions to prove how they reached the credit decision as well as delivering a comprehensive loan accounting system that incorporates IFRS 9 stage impairment at individual loan levels. Banks must then recognise expected credit losses across their total lending book and include reconciliation back to the systems of record across the credit and lending systems landscape. This requires accurately measuring the expected credit loss while documenting how a decision was reached to support that actuarial assessment. These are crucial goals for all banks.
In many Banks, there is a major reliance in data warehouse content, but what about reconciliation back to the sub-ledger, recording the loan in an IFRS 9 world? Or is it good enough to reconcile back to a point-in-time extract held on a data warehouse? Trends are now pointing to regulators wanting more and more consistency, requiring banks to verify the provenance of data in real-time rather than a point in time.
So how can banks ensure they meet regulators’ current demands and inevitable changing demands going forward?
A vital area banks need to consider is their lending and credit management systems and prepare to invest in implementing a long-term solution that builds transparency and openness between bank and regulator. The way to satisfy regulators, efficiently and effectively, is with a system that provides a straight-through process model throughout the credit and lending lifecycle that offers real-time, complete, and accurate data for credit submissions and credit loss requirements, which can then be delivered digitally to regulators. With such a system, banks avoid substantial resource commitments and cost implications, especially around Asset Quality Reviews, while staying compliant.
Banks need a credit and lending management solution that offers life-of-the-loan capabilities that is uniquely capable of addressing the challenges of the ongoing and increasing demand for reconcilable data. Straight-through processing is critical to provide the functionality necessary to:
- Perform stage assignments and track stage changes (12-month and lifetime expected credit losses)
- Capture all allowance changes loan by loan
- Make appropriate journal entries, including allowance adjustments and income recognition on impaired balances
- Provide all information necessary to support required financial statement disclosures
The real-time, straight-through processing credit and lending management model also more effectively provides comprehensive measurement and tracking of credit quality for the life of each and every loan instrument on a bank’s balance sheet, with workflows at every stage of the process to:
- Ensure required data goes through user-defined validations
- Track and update the entire history of the loan including credit underwriting decisions as necessary
- Account for proper balances and write downs at all stages
- Capture all events and relevant data to the classification of the allowance pools historically, which can be viewed in a real-time mode
In short, banks need to have the ability to view, manage, and report on all specific events affecting each loan and its effect on each asset, 24/7.
Meeting all of these requirements is where the AFS flagship credit and lending platform AFSVision® comes into its own. In addition to its market-leading management of the end-to-end credit and lending chain for each market segment, it also offers unique multi-GAAP and IFRS9 accounting in real-time with cradle-to-grave “Stage Management” handling.
These capabilities aren’t provided as an add-on module, they are native to the AFSVision standard platform. The strategic investment in AFSVision is a holistic investment; banks receive a state-of-the art credit and lending platform that provides breakthrough digital functionality, cost savings, and increased revenue capabilities along with the assurance that regulatory requirements and straight-through processing standards are fully enforced “out of the box.”
Today, meeting regulators’ demands is just as critical as meeting client expectations. Now it is possible to do both and still realise growth and revenue goals. With AFSVision, AFS combines technological innovation with financial expertise to drive strategic transformation of credit and lending across all lines of business on a single integrated platform. Digital is now on the regulators agenda and AFS delivers.