Following the global Microsoft outage in July 2024, a confidential assessment found that half of large U.S. banks analyzed have insufficient risk management processes. Banks and lending institutions are under pressure to improve their risk management processes, whether that’s protecting data from a global outage or mitigating employee errors.
As lending risk increases, so does the scrutiny construction loan administration leaders face. These executives need to be prepared to frequently report on their construction portfolio exposure. However, most of them find it tough to be armed with up-to-date information at a moment’s notice.
How Banks and Lending Institutions Effectively Manage Risk in Construction Loan Portfolios
To effectively manage construction loan portfolios, executives need access to accurate, timely loan data, but they don’t have visibility to critical data when construction loan administrators gather, analyze, and process that information using Excel and document storage tools like Box. These disjointed tools do not provide real-time portfolio visibility.
Construction loan administration executives are coming to an important conclusion: your risk management is only as good as your data management methods. A spreadsheet or an email chain isn’t going to alert you to potential errors; a platform that automatically scans documents and categorizes costs to a specific budget line item will. Think about the way your current system is set up and ask yourself: If a construction loan administrator processed a duplicate invoice in a draw request, would you notice a minute later or a week later?
Why Automated Processes in Construction Lending are Key to Risk Management
Forward-thinking lending institutions rely on automation to flag errors like these. While construction lending leaders who use automation still spot-check their team’s work, they don’t have to conduct a long and time-consuming review to recognize an issue. In a recent survey, lending executives agreed that 60% of their construction loan process could be automated to reduce errors. In the lending industry, automation can’t replace human judgment, but it can enhance risk management efforts and flag potential mistakes the second they occur.
Organizations are grappling with the need for effective risk management, more robust and frequent reporting, and increased scrutiny from regulators. The only option to effectively meet those needs is with the thoughtful deployment of technology, as increasing headcount is unlikely to be an option at the moment.
Lending institutions need to consider automation before their risk management issues snowball. If you’re already considering joining the 56% of lenders who plan to use technology to manage risk, here’s what you need to know.
