How to Empower Credit Analysts in Any Economic Environment

Risk Management

Credit analysts play a vital role within a financial institution, as they essentially act as the guardians of a bank or credit union’s balance sheet. To do this, they must be able to ascertain credit risk for new and existing clients and find ways to mitigate it.

Credit risk management practices are especially top-of-mind following last year’s string of bank failures and even U.S. bank supervisors are planning to take a more proactive approach moving forward.

"As risks increase, supervisors are going to react appropriately," said Karen Lawson, executive vice president for policy and supervision at the Conference of State Bank Supervisors, the national organization representing state regulators, which supervises 79% of U.S. banks alongside federal agencies.

State regulators are discussing ways to be more responsive, including by moving independently to quickly address problems without waiting for a consensus with federal regulators, she said in a recent Reuters article.

Given the essential role that credit analysts play in managing their institution’s risk profile, now is the time to ensure these vital team members are equipped to succeed.

3 Ways to Transform a Good Credit Analyst into a Great One

1. Help Credit Analysts See the Full Picture

Credit analysts must look at the strength of a client’s balance sheets, their growth prospects, their ability to repay, their market positions and dozens of other factors. But no company exists or operates in a vacuum. Economic events, market trends and other factors (i.e., even the outcome of November elections) occur that affect all companies in a particular market sector. Having a good grasp on the entire industry is how you determine whether a given client or prospect is doing better or worse than its competitors and whether it is good idea to lend to them.

One way to empower credit analysts better understand their client’s financials is by providing a reliable source of comparative data, which Baker Hill NextGen® offers. Our financial spreading analysis software offers direct access to a complete database of reports on more than 150,000 financial statements in over 600 unique industries. It also permits the direct and immediate comparison of a subject company to the industry.

2. Make Credit Decisioning More Consistent & Transparent

Credit analysis is a role where consistency and transparency are crucial. Stakes are often high in commercial banking and this makes accuracy, consistency and clarity during financial analysis extremely important. At the end of the day, credit analysts must have the skills and resources they need to come to a logical conclusion and be able to present why they came to that conclusion, based on the information at hand.

Baker Hill NextGen® supports this by facilitating reporting, data collection, global cash flow, covenants, a comprehensive credit memorandum and more, all a central location. It helps to improve the quality and consistency of financial analysis, enabling a credit analyst to make solid credit decisions.

Credit analysts can use our statement spreading tool to conduct complex ratio analysis, projections, peer comparisons, sensitivity analysis, and global cash flow analysis. As a credit progresses through the process, a credit analyst can choose to generate a comprehensive credit memo that automatically inserts information based on the request to support decision making.

3. Support Proactive Portfolio Monitoring

Another area where credit analysts spend their time is reviewing and monitoring existing credits. Beyond the more in-depth annual reviews, analysts must continuously monitor for changes to credit conditions that expose the bank to added risk. For example, any dip in sales or any increase in financial leverage beyond a predefined level might require a credit analyst to trigger an immediate review of the credit risk.

That’s why Baker Hill NextGen® Portfolio Monitoring uses rules and triggers to automatically alert you when meaningful changes are detected in a borrower’s behavior. Such changes are often early warning signs of weakness in their credit health, so credit analysts receive alerts weeks or months sooner than with traditional paperwork. This allows credit analysts to anticipate potential borrower challenges and take action to avoid losses before they happen.

Credit analysts need to keep a pulse on fast-moving economic conditions, including interest rates, market sector trends and macroeconomic factors to ensure that their financial institution is making loans that meet ROE goals, while still within the bank’s policies that are within the bank’s risk tolerance guidelines.

Economic conditions for a business, sector or the economy as a whole can change quickly, so credit analysts need the real-time insight offered by Baker Hill NextGen® tools to optimize the performance of their financial institution’s commercial loan portfolio.