Risk Dashboard Lets Bankers Stress-Test Loan Portfolios

WebEquity analytics let bank executives conduct stress-testing on their loans before and after loan approval.

WebEquity, a loan management software hosting provider with 600 bank clients of varied sizes, has come out with a risk management dashboard for bank executives that lets them monitor, stress-test and perform what-if analyses on their loan portfolios. The company's CEO, Doug McGregor, says it invested several million dollars in the research and development of this product.

McGregor observes that before the credit crisis, banks' lending areas were almost void of technology. "We replace replace Microsoft Excel as the primary lending tool 98% of the time, which is a scary stat," says McGregor, who demonstrated the software to Bank Systems & Technology Monday. "Billions of dollars are being processed through Microsoft Excel for making loan decisions."

But the credit crisis and regulatory activity are changing this. "Bank executives have told us that examiners and regulators constantly ask them, are you stress-testing and managing your portfolio and do you have a handle on it?" McGregor says.

The Risk Management Dashboard works with WebEquity's other loan management software and works with core banking systems, Excel spreadsheets and outside loan programs such as Baker Hill or Moody's, using a web services integration layer. It provides loan overviews and analytics that let executives see at a glance how well loan portfolios are performing. They can filter the numbers by date, loan amount, loan type, geographic locations, prepayment propensity and other parameters.

The charts are simple, clean and color-coded. McGregor notes that executives tend to be very visual and seek the big picture first. "They don't want to learn a query language, they don't want to have to go to IT and ask for 20 reports that will later need to be changed, they just want a high-level view so they can look at things, pinpoint problem areas, email information to a branch manager or loan officer to discuss at an upcoming meeting," he says.

One portion of the dashboard lets bankers analyze "sensitivity"; in other words, perform pre-loan-approval stress tests on portfolios or parts of portfolios. For instance, farms in Iowa are likely to be affected by declining milk prices; this tool lets bankers plug in an assumption, such as a 10% drop in milk prices, and see its affect on businesses.

FDIC insurance is now risk-based, McGregor notes, and a lowering of a bank's CAMEL rating by one point will drive its FDIC insurance costs way up. The pre-approval evaluations of potential borrowers can help the bank manage risk by inducing it to require more financial information from borrowers and to monitor loans more frequently.

Another part of the dashboard lets banks conduct stress tests post loan approval. For instance, a banker could input a "what if" scenario such as, what if repayment decreased 20%, how would that affect loan portfolios. Again, upon seeing an adverse affect the bank could ask those customers for quarterly updates on their financials, enter the updated information and replay its stress test.

"The last thing a bank wants is to do workouts," McGregor notes. "They consume a bank."

For this dashboard, WebEquity charges an annual subscription fee based on number of loan customers.