concentration management and credit review functions in light of the current economic shifts and ongoing regulatory focus. However, the usual response is that not much has changed or been considered necessary as the financial institution has never received any criticism from regulators in the past. Financial institutions have significant experience navigating evolving credit cycles, and this evolving economic and regulatory environment presents another opportunity to consider whether strategies need to change. Credit stresses are growing, and borrowers have to adjust to tighter financing conditions. Cash flow stress, lower income and higher costs are realities of an increasing number of consumer and commercial borrowers that impact their repayment performance. For your financial institution, look at the evolving credit risk exposure and consider some simple steps such as: 1. Assess your current loan portfolio by key segments and document the risk exposure. Although commercial real estate has been making headlines, there are also signs of weakness in other consumer lending categories. Stay informed and consider the ripple effect of softening conditions throughout the entire portfolio. 2. Evaluate your independent loan review process. Consider if your internal team is adequately staffed or providing the expertise needed. Challenge the results of third-party providers and go deeper into areas demonstrating increased risk for your financial institution. Your loan review process shouldn’t just be a validation of your assigned risk ratings. If your third‑party provider is not giving you the insights you need in the current environment, consider other options. 3. Engage proactively with your borrowers who appear to be at risk to identify opportunities to help. The time investment today could help offset potential significant losses in the future. Last but not least, you can also engage a trusted partner who can help you navigate the risks in your portfolio by providing a credit risk review that empowers management with insights and opportunities in your bank’s loan portfolio. 18 The CommunityBanker
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