the pandemic affected agricultural borrowers differently. Even though both groups are in the same agriculture sector, farmers who sold to grocery stores did well, while farmers who sold to restaurants often had significant financial problems. By the same token, some businesses might find it easier than others to pass along some of their costs — a key ability to thriving when inflation trends higher. You might find that an entire sector has this ability, or you might see that within a single sector, some businesses can pass along costs, and others can’t. Advising the customers who aren’t seeing as much profit of some strategies they can leverage to increase margins will help both them and your community bank. 4. Proactively monitor your higher-risk portfolio concentrations and downgrade at-risk loans when appropriate. The earlier you see credit risk, the more you can limit nonperformance and help commercial customers restore their credit quality. 5. Stress test your portfolio. Community banks are anticipating potential deterioration in borrowers’ debt-servicing capacity, collateral values, and credit quality of their loan portfolios due to exposure to interest-rate risk and inflation risk. There will be more scrutiny from regulators around credit stress, especially those institutions exceeding regulatory guidance on commercial real estate and construction concentration. 6. Think about Current Expected Credit Losses (CECL). Consider what your loan portfolio’s credit risk profile will mean to CECL compliance, which will become mandatory for most banks next year. Taking a holistic approach toward your borrowers’ circumstances and patterns of financial behavior allows you to see potential problems, such as credit stress before they occur. Assessing these potential risks will help you make more informed decisions for the health of your portfolio and weather the current economic times. To continue this discussion or for more information, please contact Dennis Falk at pcbb.com or dfalk@pcbb.com. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management, international services, lending solutions, and risk management advisory services. ONE LAST THING ... Did you know that you can enjoy your association news anytime, anywhere? Scan the QR code or visit: vacb-community-banker.thenewslinkgroup.org Check it out! The new online article build-outs allow you to: • Stay up to date with the latest association news • Share your favorite articles to social channels • Email articles to friends or colleagues There is still a flipping book for those of you who prefer swiping and a downloadable PDF. 21 Pub. 12 2023 Issue 1
RkJQdWJsaXNoZXIy MTg3NDExNQ==