Credit checklist: 5 things your bank can do now to manage emerging portfolio risks

As the COVID-19 pandemic slows some industries down to a crawl – and stops others in their tracks – many financial institutions are rushing to figure out the emerging risks in their credit portfolio.

In our recent webinar on developing credit risks, our specialists shared lots of valuable advice for lenders. Here’s a checklist of some of the actions they discussed for pinpointing and managing portfolio risks.

1. Get in front of anticipated losses

Triage portfolio based on an understanding of elevated risk.
Identify, source, and prepare data sets needed to assess portfolio risk.
Utilize a tool (data visualization, Power BI/Tableau, and others) to efficiently “slice and dice” portfolio data.
Based on analysis and identification of risk vulnerabilities, determine your credit risk mitigation activities.

2. Understand impact to the CECL model

Conduct sensitivity analysis to understand your model’s response to unprecedented changes in macroeconomic variables.
Assess the impact to your model if risk rating or delinquency are currently on hold.
Follow best practices of model risk management governance, including documentation of adjustments through a formal change control management process.

3. Curb defaults and foreclosures by offering options for loan modifications

Create a sound overall plan, defined processes, and technology systems for initiation and management of loan deferrals.
Make appropriate staffing arrangements, either through reallocating or hiring personnel, to accommodate administration of loan modification programs.
Document, document, document.

4. Keep yourself and your borrowers informed on government assistance programs

Stay up to speed on the assistance provided by the CARES Act, including the Paycheck Protection Program (PPP).
Understand the terms of PPP loan forgiveness – and consider how you should communicate documentation and calculation requirements to your borrowers.

4. Keep you and your borrowers informed on government assistance programs

5. Automate internal processes and offer digital banking options for restructuring

Invest in technology that can handle low-level, straightforward administrative restructuring tasks and free up your people to support other aspects of loan modification.
Create an online portal for customers seeking modifications or restructuring (with personalization options if possible) after the deferral period.

Want more insights on addressing coronavirus-related challenges?

Go to the Crowe COVID-19 resource center for more analysis and updates.

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Dave Keever

Principal, Financial Services Consulting

+1 317 706 2669

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