Given the impact of the COVID 19 pandemic, it significantly affected credit portfolios in all financial institutions.  To attempt to minimize this impact, the importance of ensuring rigorous credit analysis is critical.  Ensuring timeliness of appropriate risk rating grades for borrowers has become difficult, and it may require this analysis to be more frequent.

Our subject matter experts used the Loan Review process to independently assess the adequacy of the Bank’s credit monitoring process to ensure that Credit Management is taking appropriate actions to stay abreast of this fluid and fast changing environment. The credit process was reviewed based on the “known” facts from the borrower and the Bank’s existing credit process. We discussed with Credit Management borrowers that may be at higher risk due to the pandemic, resulting in a more detailed segmentation of the credit portfolio to enable them to identify those borrowers by level of concern due to industry segment, or individuals were at risk of unemployed due to job loss in their particular industry.

Through this process, we confirmed management’s actions to deal with the effects of the pandemic, which included more detailed segmentation of the Bank’s loan portfolio and prioritizing borrowers based on level of concern (ie. Most, Moderate, or Limited).  This led to closer monitoring of borrowers in certain industries and/or locations.  By being agile and flexible, Credit Management will be able to minimize potential credit risk as well as meet their customer’s needs during this time. Our work resulted in an initial “top side” adjustment to the Bank’s ALLL reserves.  Going forward, the need for “top side” adjustments will be minimized, as Credit Management will have better and more detailed analysis supporting the institution’s decisions on reserves due to the pandemic.