A key component to an exam involves calculating the bank’s CAMELS rating. We have had client bank’s ratings improve by two categories in eighteen months. As a former examiner I have never seen a bank’s condition improve this quickly.
The composite CAMELS rating is based on the individual ratings of the following key components of a bank’s financial condition and operations during an examination:
Capital Adequacy
Asset Quality
Management
Earnings
Liquidity
Sensitivity to Market Risk
Click Here for a detailed white paper from the OCC that can fully explain the calculation. This explains the bank’s condition according to the rating.
I was very surprised when the banks reported the improved ratings. They were not related to each other by ownership or geography. They reported the same story on how they pulled it off. Another bank implemented the same methods and made the procedures a key component of their funding control. Once again their portfolio quality drastically improved.
LQAS enables the bank to use every possible method to identify and correct document exceptions. Every encounter with a borrower the system reports all exceptions in the entire borrowing relationship in less than fifteen seconds. The lender or lending assistant has access to the system on their workstation. Whenever a borrower makes a request for additional credit, new credit or renegotiate a payment schedule this report is run.
The bank I came from did not have this technology. Several renewals were made and dozens of exceptions were missed. The Lender’s excuse was they did not have time to research each credit at renewal. This is why LQAS has this capability.
Improved ratings give the bank several operational advantages. Loan losses should be reduced or not increase substantially during an economic downturn. Lesser regulation is experienced by reduced exam time, capital requirements and liquidity requirements. We were instructed to allow well run banks to run themselves. Save your efforts for the problem banks in your area as mentioned in the OCC white paper above.
This is one of many reasons we had half our clients rated five stars on Bankrate in 2009. The other half rated four stars.
We can quickly demonstrate all of the methods we have built to protect the bank’s loan portfolio. More good news about our capabilities coming soon.
Contact: Chris Crawford – President Applied Micro Technology, Inc.