Experts have been predicting a coming recession long before Coronavirus was on the world’s radar, but nobody was quite expecting the global health pandemic that is currently wreaking havoc on America’s economy. Current economic trends are being compared to those of The Great Recession of 2008. While there are some discrepancies between the two, this still leaves bankers with a little bit of an advantage in knowing what’s suspected to come— many loans are going to become criticized.
While every loan is created with the best intentions, very few people are thinking of the bad times while experiencing the good times. As said by former Comptroller of the Currency Thomas Curry, “the worst loans are made in the best of times.”1 Bankers know that a sudden economic downturn can quickly turn a healthy asset into a special asset.
During this pandemic, community financial institutions have proven just how essential they are to their communities through their incredible outperformance of big banks in processing Paycheck Protection Program loans (we already knew they’re amazing, but we’re glad the rest of the world knows it now, too). Keep up that momentum by preparing now for what’s coming next. The way you identify, manage, and monitor your special assets could make or break your bank as we weather the coming storm in the following months and years.
Focus on Relationships
We already know how important relationship building is in the banking industry, but understanding each customer’s unique situation can help immensely in managing your special assets. Relationship Builders help simplify this process by giving you an in-depth look at your customer at a glance. It takes time to grow these relationships, too. If finding the time to build and maintain good relationships with your customers is hard to come by, it may be time to reconsider your process. Your bankers should be focusing their time on the customer, not their paperwork.
Simplify the Process
A simple, easy-to-use process will help free up the time needed to focus on relationships with the customer. Satisfied customers are the lifeline of a community financial institution. Using a Software as a Service (SaaS) solution like Teslar takes all the heavy lifting from the banker’s shoulders. Our Criticized Loan engine will automatically identify and group relationships based on loan classification codes. Teslar also automatically collects and documents account information, payment history, and classification history, so the officer needs only to fill in the narrative and submit. This saves hours of tedious and monotonous labor on your end, freeing up time to focus on those aspects that will really set your financial institution on top—customer experience. Freeing up your bankers to help guide borrowers through these times could be your most essential risk management tool.
Adjust the Way You Monitor Your Loans
Every financial institution follows different criteria to determine whether a loan is classified as criticized or not— risk ratings, dollar amount, days past due, accrual or non accrual, etc. Consider your current criteria and determine if these rules need to be changed or modified in an effort to catch these loans earlier. If using Teslar’s module, the loans that meet your criteria will automatically be identified and marked as criticized.
Change is never easy, and doubly so when you’re not even quite sure what exactly you need to be preparing for. Many financial institutions like to be cautious and wait and see, rather than make those changes ahead of time. Taking this course of action might come with unintended consequences, though. Global consulting firm Protiviti warns, “Many financial institutions were blindsided by the last meltdown. And the risk of being blindsided remains, given the multitude of potential drivers of a downturn. For that reason, it is essential for banks to go beyond identifying the obvious problem assets in their portfolios. They also must take a close look at borrowers with structural or operational issues, including those that have kept current with payments through interest reserves or payments from other sources.”
Focusing on special assets and loan review processes today can help your financial institution stay ahead and remain resilient during the (likely) coming financial downturn . If you’d like to learn more about how Teslar can help you accomplish this, we’d love to help! Contact us at firstname.lastname@example.org to discuss details or schedule a private demo of our solution!