We have been receiving ongoing questions from financial institutions on how to work through the issues their customers are facing as the impact of the coronavirus effects nearly every aspect of our daily lives. While the industry has gone through multiple challenges over the past 20 years, the previous downturns and crises have had some limitations on commerce regarding their impacts, whether geographically or more sector specific. We are now dealing with mandated shutdowns that are affecting many sectors simultaneously, causing revenues to dramatically drop overnight.
The situation is ever changing and the duration and lasting impacts are yet to be known. As customer requests for assistance and relief pour in, bank’s need to be able to react with the appropriate measures to not only help their customers get through this crisis, but to be able to identify and manage risk in a manner that helps to ensure stability.
The following represents some issues to consider for your lending administration as you work through this crisis:
|Existing borrowers requesting loan principal and/or interest payment deferrals/extensions/modifications
|Borrowers in affected sectors may experience cash short-falls due to business interruption and request extensions on payments and maturity dates.
|Requests will be processed/approved on a case-by-case basis, documentation should be maintained to reflect reason for extension/modification and whether it is virus-related.
Established loan approval procedures should be followed and documented.
Determination should be obtained regarding whether the borrowers maintain business interruption insurance, including coverage amounts, duration, etc.
SBA disaster or other related loan programs should be considered when working with affected borrowers.
|Applicable borrowers should be added to a virus-affected list in order to monitor progress and performance. Regulatory agencies have stated that short-term modifications made in good faith in response to COVID-19 to borrowers who were current prior to relief are not considered a TDR.
Existing borrower portfolio review
Borrowers already identified to maintain credit weaknesses, including criticized/classified borrowers could be increasingly adversely affected by virus-related shut down.
|Watch list / classified borrowers should be reviewed to determine the additional impact of shut down, including potential impacts on collateral values, guarantor support.
Borrowers in vulnerable sectors or with weaker financial characteristics, including cash-flow, leverage, lack of recourse should be reviewed to determine if additional risk exists.
The bank should reach out to all borrowers emphasizing its desire to work with borrowers and willingness to provide assistance where needed.
|Watch list should be enhanced to include potential virus impact.
|New customers requesting credit related to virus affected cash-flow
|New loan applicants in affected sectors may request credit to cover cash short falls.
|New requests will continue to follow established credit approval guidelines.
|Established loan approval procedures should be followed and documented. Approval requests should document if credit is virus related and/or potential virus-related risks.
|ALLL analysis and calculation
|Shut-downs due to virus will cause at least short-term economic slowdowns which will have a local and national impact.
|LLR analysis will include economic qualitative subset related to the virus related shut down. The factor will take into account impact on local and national economy and effect on consumer and commercial sectors.
|On-going review of economic factors to determine impact on loan loss reserve.
Please feel free to reach out to our banking staff with any questions or comments. TWC stands ready to assist (though not too close) in any way we can. We are all being affected by this crisis, and the best way to get through it is to work together.