The Keys to Portfolio Risk Management During a Pandemic
Business as usual, right? Wrong, unfortunately.
Things have never been more different. However, you have a full portfolio of loans on the books and there is obviously a great deal of risk associated with those loans. So, the question on everyone’s mind is how to manage that portfolio in a business environment that no one could have predicted?
Addressing the question of your loan portfolio it’s not only important for your institution to navigate its own COVID-19 response, but it is just as imperative to help your borrowers through their own turmoil.
Working From Home and Getting Work to the Bank
With so much focus on self-quarantining and social distancing, the focus of creating touchless, digital relationships must be a top priority for banks today. Gaining insights into what is going on with your borrower’s business and getting those updates often is key. But how do you accomplish this without constantly harassing your borrower, who is fighting for the life of their business, while at the same time homeschooling their kids?
Digital portals that allow for secure uploads of financials, appraisals, etc., and processes like automated financial statement spreading will free up your borrowers time to focus on their urgent business needs while simultaneously providing you updates on a more frequent basis into the activity (or lack of) in your borrower’s financials – especially those small business borrowers.
Like a lot of businesses, Baker Hill is working differently today. For example, we find ourselves using collaboration tools like Microsoft Teams and other solutions a lot more. While this is a helpful tool, it is not the kind of team I am referring to. Redefine your portfolio management team to be some of our old friends, like loan covenants for larger commercial loans, periodic credit score reviews, balance activity and account trends, and the all-star of the team, insights from an integrated system.
In a time like we are in, covenants can establish benchmark metrics that are intended to ensure that the borrower remains financially healthy and that the bank’s investment is protected. Quarterly soft-pulls of the credit score will give you trends on how your borrowers are cooperating with other lenders and having that all in one solution to help you track and identify actions and responses will give you an edge in this new normal.
Open communication and coordination with your borrowers are important aspects of pandemic planning. Banks should coordinate information with borrowers, influencers in their markets like attorneys and accountants, and other community coalitions to help make sure everyone is on the same page as much as possible.
With a powerful customer relationship management system in place, you can stay appraised of what is happening in your borrowers’ businesses and be ready to have candid conversations. People are wanting clarity and direction of what is happening in their life. This pandemic has made that kind of clarity nearly impossible to obtain so be the solution, not part of the problem, and be that trusted business partner they are looking for.
Times have changed. Our banking processes and how we monitor risk must evolve. By taking advantage of some modifications in how you manage your portfolio you will be able to navigate these current storms.
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Posted on Wednesday, March 25, 2020 at 9:00 AM
by Mike Horrocks