Recession planning can create opportunity in uncertainty

Giulio Camerini, Steve Krase
1/24/2023
Recession planning can create opportunity in uncertainty

Unease about the future of lending is cause for action, not hesitation.

Circumstances surrounding economic uncertainties might seem familiar to those who lived through the 2008 recession or experienced an initial sense of impending doom at the onset of the COVID-19 pandemic in early 2020.

While stimulus and relief packages lessened impacts on banks during the 2008 recession and the pandemic, similar safety nets are not guaranteed for future disruptions. Lending organizations that expect the same stimulus and relief packages could find themselves at a disadvantage. The ball is in lenders’ courts, and what lending organizations do with it could greatly affect their performance during a recovery.

Crowe credit specialists can work with your organization on loan review, data aggregation, testing, and special credit projects.

Why are banks waiting to begin recession planning?

Why are banks waiting to begin recession planning?

To put it simply, a lot has been going on.

Credit issues resulting from the pandemic were less volatile than they could have been thanks to the financial stimulus lending organizations received. Today, as a recession looms, some organizations might be operating with a sense of security or expectations of assistance that could lead to complacency and a reluctance to recognize risk.

Additionally, shifts in the workforce have left many lending organizations’ staffs spread thin. Senior talent might have retired or migrated away, and training programs for junior talent have had less structured investment in recent years. The overall size of a department could be smaller, or the department could have grown in responsibilities without adding more staff. The resources to hunt down statements and analyze lending outlooks might not be available.

Amid these less-than-ideal conditions, many organizations still feel pressure to replace paid-off loans, increase growth, and keep their interest income up in a slowing loan market. Risk management might yield recommendations that complicate the pursuit of these goals – even if the advice is ultimately well informed.

Reasons abound for not evaluating readiness for an oncoming recession. But what if there were incentives for proper assessment and preparation that could help prevent loss and increase future lending opportunity?

Those who prepare for a recession can be better positioned after it.

When banks and lending organizations are facing fast-moving changes with limited time and resources, proactive strategies and actions can have a significant influence on how they weather a recession and position themselves during a recovery.

Comprehensively assessing the organization’s current status, identifying gaps in lending functions, and taking steps to mitigate those gaps now can help organizations:

  • Face fewer losses. Examining outlooks and adjusting lending strategies accordingly can head off losses.
  • Recover from losses faster. Anticipating and reacting to changes more directly can help reduce the overall post-recession deficit.
  • Identify potential for new products, services, and geographies. Reviewing where competitors might close off their credit box and determining whether the organization can fill the vacuum can expand opportunities.

Depending on their level of recession planning, organizations can strategically seize market opportunities that others either pull out of or are not in a strong enough position to capture. On the other hand, less preparation could lead to a longer recovery time and an inability to take advantage of open opportunities.

Establishing a recession plan is critical.

Establishing a recession plan is critical.

A good preparedness strategy – whether for a recession or any future disruption – starts with an assessment of current goals, gaps, and needs in your lending functions.

If your organization needs help with getting its bearings, creating a recession plan, or executing its goals, our credit professionals can offer seasoned experience and resource-saving tools to help you succeed.

Crowe consultants have created an extensive checklist that can serve as a good starting point for your evaluations, focusing on areas including staffing, oversight and governance, policies and procedures, and reporting.

Is your lending organization prepared for a recession?

You don’t have to take on recession planning alone.

Contact us today to learn how to weather uncertainty and emerge stronger on the other side.
Guilio Camerini
Giulio Camerini
Principal, Financial Services Consulting
Steve Krase
Steve Krase
Principal, Financial Services Consulting