Since the onset of the COVID-19 pandemic, the world as we know it has changed rapidly, and with it, commercial banking. Banks across the U.S. are scrambling to strategize against stressed commercial loan quality as delinquencies and deferrals pile up and drive rising reserves and charge-offs. As defaults loom, many banks are gearing up for a wholesale shift from loan growth to loan resolution.

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With commercial loan quality under stress due to COVID-19-related pressures, many banks are discovering that the basic risk rating system they have employed for the last decade or more is not sufficient to rate, manage, and report on loans in the current environment. 

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Now nearly two quarters into the COVID-19 crisis in North America, financial institutions are still learning how to deal with unprecedented economic disruption and its impact on the quality of new and existing commercial loans. In response, many institutions have made major adjustments to their lending standards, so much so that the latest Senior Loan Officer Opinion Survey (SLOOS) reports that Q2 2020 commercial lending tightened the most since the 2008 financial crisis.

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Read our wrap-up of the Q2 2020 Credit Trends in Commercial Lending webinar where we discussed how loan performance continued to decline as past-due levels and deteriorations increased in many industries. 

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In a recent RMA Risk Readiness webinar sponsored by Inpensa, “COVID-19: Accelerating Digital Transformation,” Inpensa Co-Founder, President, and CEO Suraj Nekram outlined what banks need to consider as they pursue their own transformation journeys. 

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Read the blog to explore how you should approach the outputs of risk rating models during these uncertain times and how you can adjust your risk rating system to adapt. 

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