Did you know that stress is the number one cause of heart attack?
Sound familiar? This can be prevented with regular risk monitoring. Managing this risk goes a long way to helping your loans succeed.
What is risk monitoring and management? It’s all about knowing where you stand. It’s knowing your potential losses. It’s managing your assets and liabilities.
Read on to learn more about risk monitoring and management in the lending industry.
Let’s get into it!
Assess Your Automation Needs
Automation is an effective way to ensure accurate and timely data collection, build compliance, and improve efficiency. To properly assess your automation needs, it is important to determine the sources, types, and frequency of risks you face as a lender.
This process begins with evaluating the need and benefit of automation and how it could positively impact performance. It then proceeds to analyze the potential risks, such as financial institutions, operational, legal, and reputational risks, and evaluate the cost and benefit of each risk.
Build Your Risk Strategy
Lenders must have a plan in place to monitor and manage their credit risks, including decision trees, automated system alerts, and rules-based triggers. These strategies provide lenders with the tools to identify potential areas that may pose a risk to their loan portfolios.
Developing a game plan is a must resource for lenders and banks to ensure that their strategy is working. The game plan should address all of the elements of a good risk strategy, such as assessing the risk tolerance of the lender, identifying potential risks, and preparing to act quickly and decisively when needed.
Achieve Standardization and Visibility
Lenders can then develop guidelines and procedures for evaluating and managing potential risk. By standardizing the risk evaluation process, lenders can better evaluate suspicious loans and ensure prompt and responsible action.
With visibility, lenders can see a comprehensive view of how borrowers and the market are taking shape. Through this, they can identify potential trends and take corrective action to protect their investments as well as minimize losses.
Prepare to be Audited
A well-structured game plan that outlines a comprehensive implementation process for a risk monitoring and management system is essential. Key components of this system include comprehensive policies and procedures that define the process for accurate financial institutions, credit quality analysis, risk identification, loan collateral monitoring, and stress testing.
Good internal controls, processes, and reports are all important for an organization to prepare for an audit. Additionally, lenders should consider hiring independent auditors and experienced professionals to review and test their loan portfolios for the following:
- accuracy
- completeness
- accuracy
This includes ongoing monitoring and management of borrowers’ creditworthiness, operational performance metrics, and collateral value and liquidity. In the event of a potential default, lenders should have a mitigation strategy in place for resolving the default.
Top Game Plan For Risk Monitoring
Risk monitoring and management provide the necessary guidance and controls to help lenders eliminate or mitigate both strategic and general operational risks. By following a dynamic and comprehensive approach to weigh risks and monitor exposures, lenders can trust in their decisions.
Embrace this concept and start building your game plan for risk management today.
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