Managing risk in loan origination

In this article, John Baer, Director of Product Management at Moody’s Analytics, discusses different ways to balance ROI goals with managing loan origination risk.

“This workflow solution will enable loan originators to understand the status of obligor and transaction risk, actively manage exposure limits, and monitor key performance indicators (e.g., profitability, capital requirements) of not only the transaction but the portfolio at the time of origination”
-John Baer, Director of Product Management at Moody’s Analytics

Recently I sat down with a group of risk management professionals from large financial institutions to discuss the evolution of their loan origination risk processes over the past few years. No matter the financial institution, the primary objective of their loan origination process has remained unchanged: service new business with the greatest return on investment possible.

To maximize return, the different financial institutions have implemented new internal rating models with Basel II guidelines in mind. And with the updated risk rating policies, data quality and integrity remains evermore paramount to ensure the most efficient and effective origination decisions are being made. However, these risk managers expressed challenges implementing new risk rating systems across dated core banking technology platforms that were never originally designed to communicate with one another, much less support banking professionals across different departments and varied geographic areas. With a constant evolution of risk modeling and banking software, along with the merger and consolidation of different financial institution systems, the modern loan origination process is becoming more complex. To ensure an effective loan origination process in the competitive landscape, improved systems and model development requires timely and pertinent information when making origination decisions.

Moody's Analytics provides financial institutions around the world risk tools at the single obligor transaction and portfolio levels to assist with the loan origination process. Moody's Analytics has released a new workflow offering that not only brings together its leading risk tools to enhance the loan origination decision making process, but through a modern software architecture will also allow you to integrate your banking systems into the loan origination workflow.

This workflow solution will enable loan originators to understand the status of obligor and transaction risk, actively manage exposure limits, and monitor key performance indicators (e.g., profitability, capital requirements) of not only the transaction but the portfolio at the time of origination. In addition the workflow solution will also automate origination processes such as:

• identifying who in the financial institution needs to be involved in the origination decision and when
• fast tracking the approval of certain types of transactions or identifying different approval levels required before a transaction can be sanctioned
• documenting and archiving the required information in accordance with you financial institutions originating policies

Financial institutions will continue to seek increased return in their investments, including the loan origination process. And Moody's Analytics is continuing it's commitment to the loan origination process through increased investment, bringing together solutions with workflow functionality, allowing financial institutions to make the most effective and efficient loan origination decisions.