Business Solutions in Banking: Reliable Monitoring of Covenants


Covenants are well-established in credit risk management, especially in the complex world of commercial lending. Monitoring these covenants is challenging to numerous banks, as it often entails time-consuming and costly manual follow-up activities. Regulatory requirements, such as those outlined in the Guidelines of the European Banking Authority (EBA), intensify the monitoring requirements on financial institutions. Among other things, a bank must practically be able to assess the risk position of a loan at any time. In this first article of our series 'Business Solutions in Banking', we outline how the monitoring of covenants can be implemented both rapidly and securely in a modern business application on a banking platform.

Covenant management is one of many use cases for which banks wish to find solutions that can leverage processing potential while fulfilling the risk management requirements of today and tomorrow. A software solution easy to customize to individual needs enables experts to significantly accelerate the processing procedure, the collaboration, and to use data from monitoring to gain insights into the customer. A modern covenant application is minimizing the risk of credit default and is handling documentation requirements on comprehensive and traceable decision-making.

Challenges in Compliant Covenant Monitoring

Recurring monitoring activities are a time-consuming and error-prone process for many middle- and back-office units. Errors are mainly driven by manual tasks and a lack of system support. In particular, many financial institutions are using simplified database solutions or are even managing covenants in unstructured documents. This is not only crucial in terms of audit security and conformity to the regulators' guidelines; it also offers no system support and automation potential.

New call-to-actionMonitoring items are often processed using inflexible resubmissions concepts without system support that therefore cannot respond to interim occasions – such as the temporary suspension of commitments. Formal and material checks are usually performed by experts, although monitoring declarations (e.g., compliance certificates) are following a standardized structure or are defined in the credit agreement and could be mapped systemically. Due to the lack of a data structure and data mastery, it is also not possible to contextualize the business information from monitoring and provide it as insights to the deal team, i.e. for cross-selling purposes.

Regulation also demands that monitoring should also be ensured through close contact between the relationship manager and the customer (i.e. EBA /GL/2020, 8.4.). For many financial institutions, it is currently uncertain how such a concept can be operationalized and documented. Commercial customers usually have a large number of credit agreements causing substantial effort to provide respective information or documents. Providing monitoring business capabilities to the customer portal and ensuring a seamless customer journey, would provide a great experience. These kinds of services may encourage professional customers to use the portal more frequently.

Implementing risk-relevant use cases with a banking platform

The isfinancial banking platform provides a digital expert workplace out-of-the-box to perform operations such as covenant monitoring. The required business logic can be implemented (and also extended or adapted) quickly and securely using existing modules and curated tools.

Aggregate Data, Gain Insights

Based on a domain-driven data model covenants are not managed as isolated business data, but put into the context of applications, product agreements, and customers, etc. This allows data structuring in the context of the entire customer relationship and gaining customer insights. This is not just a benefit with the sales approach, as i.e. financing causes can be identified, but it also strengthens early risk detection.

Automating Business Processes

The curated technology on the platform allows automation and acceleration of the overall processing: business data capturing, request creation, and enrichment assignment of tasks to an expert. The system is informing the respective user about a pending task with all kinds of events or escalations being triggered systemically based on due dates or business rules.

Transparency for Customers and Supervisors

Since all interactions are logged on the platform, decision input can be verified in line with compliance or regulation requirements, and process status or SLA conformity is applicable at any time. Moreover, isfinancial can provide business data to the customer portal enhancing the customer experience with status information. The platform can also capture business data being uploaded in a customer portal or any other channel (i.e. mobile app or a third-party platform,).

Would you like to learn more? In our covenant monitoring example, we are using a video to explain how a banking platform is managing business logic in its entire lifecycle and is enabling constant changes.


With a banking platform, risk-relevant and complex use cases can be implemented quickly and securely. This applies not only to monitoring but to any kind of functional and recurring tasks across all offices. This relieves experts from routine tasks, is accelerating the process, and therefore reduces transaction costs and improves the customer experience while strengthening audit security and early risk detection.

We are eager to provide our platform and experiences in implementing bespoke software solutions to financial institutions. We are happy to be your trusted advisor in the digital transformation of your retail and commercial lending business. We are looking forward to your questions or comments!

Subscribe knowis newsletter

In the next part of our series 'Business Solutions in Banking', you can find out how to use the tools of the isfinancial platform to quickly and easily create business applications that help you gain customer insights.


Teaser: HAKINMHAN - 664599098 - iStock.

Written by -Torsten Spörl-

Torsten is Chief Revenue Officer and responsible for the 'Customer Tribe' of knowis AG. At the beginning of his professional career, Torsten worked in transaction consulting in the financial services sector at two of the 'big four' management consultancies. He then led various units in the banking sector, focusing on corporate customer business and project financing.

Share now

Subscribe our newsletter

White paper download: Credit. Digital.