the peak of non-performing loans (NPLs). This may be the most telling data supporting the continuing need for credit risk management vigilance! The Now It’s clear that, given all of the data listed above, those directly responsible for your bank’s credit portfolio performance must stay vigilant. Consider directing attention to these key areas: • Accept that regulatory scrutiny is increasing significantly, particularly in the CRE arena. Be sure to reinforce your adherence to both the December 2006 “Interagency Guidance on CRE Concentrations” (Fed SR7-1) and the more recent June 2023 “Prudent CRE Loan Accommodations and Workouts” (Fed SR23-5). Be proactive in anticipating CRE repricing and performance, monitoring concentrations unique to your bank and ensuring that management and the board are fully informed. • Enhance all aspects of loan review — whether performed internally (annually) or by an external independent provider — and ensure the quality and experience levels of those performing the reviews are up to the task. Remember, loan review is one of the most reliable tools for early detection of credit risk — a proven corollary to reduce loan losses. • Perform stress tests, preferably paired with loan reviews, that go beyond providing theoretical losses. Also, focus on suspect borrowers who could potentially move the needle on losses higher. David Ruffin is Principal of IntelliCredit, a division of QwickRate. He has extensive experience in the financial industry, including a long and pronounced 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. For more information, visit intellicredit.com or email info@intellicredit.com. • Embrace practical and affordable portfolio analysis tools that provide early detection of weakening trends and emerging hotspots, particularly within your bank’s lending concentrations. Your loan portfolio is your DNA, so know what it is telling you before regulators arrive. Smaller banks remain laggards in this area. Waiting for call report data to depict loan quality is a fool’s errand because, as they say, “Those horses are already out of the barn.” We all join in the optimism of the lending officer ready to put recession fears behind them, but history and current conditions mandate that the industry keep its guard up and manage what appears poised to be the greatest level of credit stress since 2008’s Great Recession. 8 In Touch
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