Covenant testing applies the specific financial covenant definitions from each loan agreement to the most recently available borrower financial data, annual audited statements, interim reviewed financials, tax returns, or borrower-submitted management accounts, and computes the metric values required to determine compliance. When a covenant test produces a result that is in breach or within a configurable proximity-to-threshold band, the finding is surfaced as a covenant alert for credit officer review and relationship management action.
Covenant alerts include the specific covenant tested, the computed metric value, the applicable threshold, the source financial data used for the computation, and the observation date, providing the credit officer with the complete context needed to assess whether the breach or proximity warrants immediate action, a covenant waiver process, or enhanced monitoring. The agent produces the test result and the context; the credit officer determines the appropriate relationship management response.
