All financial institutions are now required to adopt the current expected credit losses (CECL) standard for estimating credit loss allowances. The CECL standard is designed to improve the accuracy and transparency of credit loss estimates by requiring financial institutions to consider all available information, including historical, current, and forecasted conditions during estimation.
These institutions must comply with the new accounting standard and maintain accurate financial reporting as regulatory reporting for CECL begins with the March 31, 2023, call report.
To meet the CECL requirements, financial institutions require a solution that houses refined credit risk models and advanced documentation for increased visibility while ensuring compliance at all times.
Applied Micro Technology’s (AMT) flagship solution, Loan Quality Assurance System (LQAS), is built to meet all CECL requirements.
By adopting this solution, financial institutions can stay compliant with CECL and demonstrate their commitment to transparency and loan quality.
Several clients are using LQAS as their second CECL solution after discovering that it runs itself and examines possible future losses as a trained regulator would. This is also unique to this model.
Our LQAS is built to monitor the portfolio throughout the lending lifecycle. More than half of the risk models within our solution don’t exist anywhere else,” says Chris.
These are first-of-its-kind and purpose-built to streamline the lending process, increase operational efficiency, and save time for financial institutions.
Protecting the Loan Portfolio
The disasters that happened in the banking industry in March emphasize the importance of maximizing loan quality and monitoring all assets owned by a bank.
Although the failures were located elsewhere on the balance sheet, the need to optimize loan quality has never been greater, says Chris Crawford, AMT’s president.
Our LQAS holds a natural edge in addressing this need as it’s capable of analyzing data at a granular level to help institutions better account for expected credit losses over the entire loan lifecycle.
Built by bankers for bankers, LQAS is a powerful tool that helps financial institutions of all sizes simplify their lending processes. It is designed to aggregate a corpus of data, calculate expected credit losses, derive provisions, and report on key risk drivers.
By automating the backend lending processes, AMT’s LQAS drastically cuts down the time to gather and consolidate information from days to seconds.
Feature-Rich Solution, With Speed as Its Forte
LQAS is a powerful tool that enhances transparency throughout the loan lifecycle and helps financial institutions avoid lending pitfalls.
For example, past due consumer debts are major red flags for future loans. By leveraging LQAS, banks gain a more comprehensive picture of loan portfolios and identify potential problems early, giving them time to take corrective action and prevent losses.
To ensure success, adequate and accurate documentation is critical. According to the Office of the Comptroller of Currency (OCC), financial institutions that need to document their transactions properly often find themselves in a tight spot with regulatory authorities and is the major cause of failure. LQAS addresses this issue by including a built-in documentation monitoring model that detects inadequate documentation.
LQAS is more than a run-of-the-mill system that tracks documents and monitors collateral values. It is an environment that weaves in every piece of information needed to make critical loan decisions. The holy grail of a lending management system is its ability to grade a loan and provide accurate reasoning behind that decision. LQAS has advanced analytical capabilities that enable it to grade, provide reasons, and write up all loans in less than a second. Its lightning speed also accommodates other far-reaching consequences like generating loan committee workups and presentations for new prospective loans in 10 seconds. It even creates a review of the same, a task that typically takes a day or more to do manually. LQAS can decide who and why a person is eligible and then document all that information on an examiner line sheet in less than two minutes bank wide. This proprietary method highly simplifies review processes.
LQAS’s unmatched speed extends beyond eligibility verification to guarantor tracking, and it keeps tabs on guarantors and the loans being guaranteed by clients. The solution can handle up to 4,000 guarantors per customer and calculate the guarantee amount daily, making loan review sampling painless for clients.
Since LQAS automates and streamlines many review and monitoring processes, financial institutions can easily pull needed information during audits and demonstrate compliance anytime.
Alternatively, banks can gain a bird’s-eye view of their largest debtors and develop ways to address the possibility of client insolvency.
On the collateral side, LQAS tracks values like real estate or vehicle prices and updates those estimates at will, enabling banks to assess risks better. The insights are fed into the CECL model to determine how loans are graded. The system can manage thousands of pieces of collateral per note, a remarkable improvement over manual tracking methods. The data obtained is also instrumental in performing stress testing to help banks prepare contingency plans for economic downturns.
“When developing LQAS, we prioritized building a pecking order of what could cause a bank to suffer a loss,” says Crawford.
Document imaging option
Half of the client base also utilizes LQAS for document imaging. This addresses several shortfalls of other systems. Images are automatically indexed. Since document tracking is the heart of the system only valid and tracked documents are imaged. The documents can be imported from other systems, emails or bulk scanned in seconds. Retrieval speed at a nationwide client is one second to the branch. Images are fully integrated in the system. This enables remote exams or reviews. Images are the missing link in an automated loan or portfolio review.
Delivering on Vendor Promises
Founded by bankers, AMT understands the impact vendor- associated risks can have on the daily operations of financial institutions. To ensure a successful installation, AMT begins by downloading and validating a client’s core data for accuracy before integrating it with LQAS.
Staff members are then trained to ensure a seamless user experience using the system, from loading files to obtaining collateral values. The initial demonstration session takes about 20 minutes.
According to Crawford, AMT is committed to delivering what it promises to clients, offering a four-month trial period prior to payment for LQAS to ensure it meets their needs.
LQAS’s value proposition has been demonstrated in numerous instances. For example, a client saw a two-slot increase in their CAMELS rating, which measures capital adequacy, assets, management capability, earnings, liquidity, and sensitivity. Similarly, a Louisiana client reported that LQAS significantly reduced their time to perform all back-office lending functions, and it graded the portfolio, including write-ups, in just two seconds.
Expert-Crafted Product Roadmap
AMT attributes all its success to its team of industry experts with extensive experience as bank regulators, providing first- hand insights into the requirements of financial institutions and community banks. Crawford, who has worked as a commissioned bank examiner for over three years and a commercial lender for another three, is well-versed in the banking industry. He created the first commercial system to track loan documents to postpone or prevent bank failures.
“Through my experience over the years, I have created and tested many methods to analyze and minimize risk. These are now translated into our proprietary risk models and offered to financial institutions through LQAS,” says Crawford. His industry expertise continues to play a critical role in the success of LQAS.
The transition to CECL is upon us, and financial institutions adopting a time-tested lending management system like LQAS are more likely to weather these changing regulatory tides.
Over eighty percent of our client base was rated four stars or above during the Great Recession. The ability of LQAS to help the bank be the best they can be speaks for itself.