Asset Quality - 2020 and Beyond
One of the advantages of having outside loan review is the benefit of our team visiting various banks in various communities and states. This can provide an insight to what may be on the horizon for credit and lending.
In general, the current state of credit quality is strong when using traditional metrics, such as delinquencies, the amount of non-performing loans, problem loans and credit losses. However, many credit professionals, including regulators are starting to send mild warnings. The most common reason noted is a period of easing credit standards, which often occurs after an extended period of expansion and increased competition for credit.
In the OCCs semi-annual risk perspective (December 2019) warned that credit risk is building from years of easing in loan underwriting, risk layering and potential concentration issues. The FRB reports similar comments, but added issues from policy exceptions, financial covenants, financial analysis and guarantor support.
While the majority of banks continue to show strong growth and asset quality, this may serve as a mild reminder to continue to assess your overall credit underwriting standards and extend credit on your terms and not of your competitor. Credit cycles are difficult to see coming and losses can be high when a downturn does occur. Stay diligent!