• Ensuring Board Awareness: In a regulatory environment where “if it didn’t appear in board minutes, it didn’t happen,” ensure that boards are kept abreast of both credit risk strategies and contingencies. Specifically, this should be linked to adjustments in risk appetite statements and even potential capital contingency plans. • Discerning Loan Growth Strategies: As many banks over the past few quarters have assuaged fears over robust loan growth, it’s important to ensure that, even in a heightened credit stress environment, the bank remains in the lending business. Fine-tuning the underwriting risk lens will help avoid the damaging perception that loans are not being made. Enhancing the Three Pillars of Post-Booking Credit Risk Management The time-proven axiom that early detection stems losses still holds true. • Loan-Level Stress Testing: Ensure that whatever the theoretical stress levels calculated, the process renders a practical list of loans/borrowers most at risk under greater stress. Conventions like monitoring covenant compliance and ensuring timely annual and independent review strategies should be prioritized to give adequate attention to these heightened suspects. • Quality Loan Review: A bank’s credit team must always see loan review as a risk assessment partner. Under greater stress, the scope of the review must be expanded and performed by reviewers with real credit experience. • Portfolio Analysis: Banks should mine their non-public loan data vigorously to detect emerging trouble spots early. Waiting for public call report data to determine the bank’s credit risk profile will prove even more costly in a credit downturn. There is no clear direction on short- to interim-term credit quality trends, but the bank’s vigilance toward any future credit risk degradation is essential. David Ruffin’s extensive experience in the financial industry includes an emphasis on credit risk in a variety of roles that range from bank lender and senior credit officer to the co-founder of IntelliCredit and its technology that is revolutionizing a decades-old loan review process. David was also a co-founder of the successful Credit Risk Management LLC consultancy and a professor at several banking schools. A prolific publisher of credit-focused articles, he is a frequent speaker at national and state trade association forums, where he shares insights gained by helping lending institutions evaluate credit risk — in both its transactional form as well as the risk associated with portfolios based on a more emergent macro strategy. Over the course of decades, David has led teams providing thousands of loan reviews and performed hundreds of due diligence engagements focused on M&A and capital raising. FMSI www.fmsiconsulting.com 913.955.3355 FMSI is a small business founded and located in Kansas, specializing in assisting community banks to succeed, a mission consistent with core CBA values. We have partnered with community banks for nearly 25-years providing core advisory services including asset/ liability, investment, and liquidity management. FMSI advisors actively assess market conditions and bank balance sheets of different size, mix, and capital levels. Market conditions are constantly changing presenting opportunities and challenges for CBA member banks. Interest rates are increasing for the first time in nearly a decade and now is a perfect time to partner with a trusted, industry leader. Establishing an FMSI relationship provides confidence your bank is optimizing the balance sheet, deploying necessary strategies, maximizing profitability, and managing balance sheet risks. FMSI is a Kansas CBA Endorsed Provider 19
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