In these dynamic times, many financial institutions have found that traditional loan portfolio management (LPM) is no longer adequate. It focuses primarily on origination, performance and covenant compliance and relies too heavily on trailing indicators of credit quality such as delinquency, nonaccrual and risk rating migrations. While these activities will always be critical mainstays of LPM, they do not give a broad enough picture to identify and mitigate portfolio risk.

This article discusses loan portfolio risk in today’s financial market and identifies four key areas where LPM can play a greater role in enhancing an institution’s bottom line and stability.