Pub. 10 2021 Issue 3

30 Are There Still Credit Risks Related to the Pandemic? By Mark Wei tekamp, BKD T he short answer to that question is a resounding “Yes!” e economy is reopening, the vaccine is widely available, and face coverings and social distancing mandates are being li ed. Regarding the coronavirus pandemic, these are all good things. However, regarding a bank’s loan portfolio, there may still be some lingering risks of which bankers will need to stay abreast. If you rewind to this time last year, bankers really did not have an idea of how the pandemic would a ect overall credit quality. e below graph shows that while nonperforming loans have ticked up since year-end 2019, overall credit quality has not su ered close to the level we all thought it might and is still much better than in the last credit crisis, although not quite as good as shown when considering the number of borrowers still in deferral and not reported as past due. Source: fdic.gov We are not out of the woods when it comes to the e ects of the pandemic on a credit portfolio. Here are some things to think about in a few segments that still have looming questions: O ce & Retail Commercial Real Estate – What will the long- term e ects of the pandemic be? Will o ce workers return to the o ce? ey may in the short term, but as leases roll o , will companies renew leases on all their o ce space, or will they reduce it and allow workers to work remotely to save occupancy costs more permanently? Brick-and-mortar retail had been on a slow decline prior to the pandemic. Will the decline accelerate, or are people anxious to get back to an actual shopping experience? Senior Living Facilities – Given the e ects of the pandemic on senior living facilities, will people transition to these facilities as they have in the past, or will technology and the improvements in home healthcare delay those transitions? Hospitality Including Hotels, Event Spaces, Movie eaters, etc. – ese companies were hit especially hard during the initial stages of the pandemic and were forced to rely on government assistance. How will they perform without the assistance? Local employment also will have an e ect on these companies. Are they able to nd workers to reopen? Will the workers be more expensive? Are there remaining restrictions in place? Apartments – ere may be some unidenti ed risk in these properties due to government stimulus payments and moratoriums on evictions. As with hospitality companies, the local employment picture will a ect these properties.