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    Transforming Portfolio Monitoring and Regulatory Compliance with GenAI

    May 2024

    Transforming Portfolio Monitoring and Regulatory Compliance with GenAI

    In our previous blog posts, we highlighted the transformative potential of Generative AI (GenAI) in the banking sector, particularly its promising role in lending and loan origination. In this new post, we’ll cover two other related areas where GenAI is making significant strides: portfolio monitoring and regulatory compliance.

    Portfolio monitoring and regulatory compliance are two essential pillars of banking. Efficient portfolio monitoring allows banks to manage risks effectively. At the same time, regulatory compliance ensures that banks operate within the legal and ethical boundaries set by regulatory bodies. Traditionally, these areas have been labor-intensive and complex, requiring considerable time and resources.

    The role of GenAI in portfolio monitoring

    GenAI can potentially bring about a significant change in how portfolio monitoring is carried out today by consolidating disparate data sources and promptly identifying high-risk investments or assets in a portfolio. This immediate detection of potential risks allows for proactive management and mitigation, safeguarding the portfolio's health and the bank's financial stability.

    It can also generate insights from data, identify areas of concern, and automatically create reports and visualizations of findings, enhancing the depth of available analytics. For example, in commercial real estate, GenAI can provide a comprehensive portfolio view, allowing for real-time monitoring and analysis. This enables banks to stay ahead of the curve, identifying potential risks and opportunities early on.

    Moreover, GenAI enhances stress testing and modeling capabilities. Users can conduct stress tests on their loan and property portfolios by describing scenarios related to changes in factors such as interest rates, cap rates, and net operating income (NOI). This enables banks to assess portfolio risk, from the impact on variables such as loan-to-value (LTV) to debt service coverage ratios (DSCR). Furthermore, GenAI can capture risks related to other aspects of a portfolio, such as tenant exposure or increasing operating expenses, supporting an organization's NOI forecasts.

    GenAI in regulatory compliance

    When it comes to regulatory compliance, GenAI can automate the entire calculation and reporting workflow. It enhances the auditability of calculations by providing on-the-spot data lineage and regulation-to-implementation information. Moreover, the technology can provide detailed information about the latest regulations, helping financial institutions track, summarize, and train personnel on regulation changes.

    The future with GenAI

    With GenAI technology, banks can look forward to more efficient processes, deeper insights, and enhanced compliance and decision-making capabilities. However, as with any new technology, the successful implementation of GenAI requires careful consideration of a wide range of factors, including data governance, algorithmic bias, and ethical implications. Embracing GenAI will be vital to staying competitive and driving success in banking. Learn more about how Moody’s is using AI to automate tasks and unlock the capacity of your teams.

    Learn more about how Moody’s is using AI to automate tasks and unlock the capacity our your teams.