Credit Portfolio Management

Maximize Performance by Managing Risk

As regulators expand stress testing and other capital management requirements to more institutions, the inadequacies of ad hoc, spreadsheet-based portfolio management become more readily apparent. In addition to needing more sophisticated technology for regulatory compliance, today’s lenders also require integrated and automated tools for the fundamental purpose of managing their portfolios more effectively.

That is the purpose of credit portfolio management (CPM): to actively monitor, manage, and analyze individual assets and the portfolio as a whole in order to minimize credit loss and volatility while improving income and capital usage.

To accomplish this, CPM software must be capable of integrating loan and credit data from various disconnected internal systems and third-party sources. This capability is necessary in order to measure diversification at the portfolio level and determine the degree to which individual assets affect the institution’s diversification goals.

Choosing the Right CPM Business Model

Banks face a number of critical choices in order to develop, configure, and implement a CPM solution. One fundamental decision is whether to structure the CPM function as a centralized unit with limited profit and loss (P&L) responsibility or to assign CPM responsibility to individual business units, which are then held accountable for optimizing risk-adjusted return on capital (RAROC).

Banks also must consider which of several typical CPM business models are most appropriate for their particular circumstances.

Crowe Horwath LLP offers stress-testing consulting services that complement a powerful proprietary tool that helps banks analyze their current state and meet the expanded Office of the Comptroller of the Currency (OCC) Dodd-Frank Act Stress Testing (DFAST) requirements.