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Making Workouts Work: Easing the Transition from Loan Growth to Resolution

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.

It’s no doubt a challenging situation, but like always, access to the right personnel can make a significant difference. But what happens when, months into our current crisis, the workforce is still better equipped to handle pre-COVID economic conditions? Read on for a breakdown of what’s driving the shift to loan workouts, why banks are struggling to address it with the right personnel, and how RMA’s new virtual course could help members improve the skill levels of their loan resolution teams – many of whom are new to workouts – to ensure success for both the bank and its clients.

What’s Driving the Shift to Workouts?

A look at the latest commercial credit quality data paints a rather startling picture. According to a recent article from American Banker, criticized assets are “the credit quality metric to keep an eye on,” and “criticized commercial loans grew more than 100% at three of the four largest U.S. banks” between December 31, 2019 and June 30, 2020.

Furthermore, based on our own data collected through RMA and AFS Risk Analysis Service (RAS), the number of criticized C&I loans jumped 46% from year-end 2019 to end of July 2020, and loans rated as loss were up 172% during this same period. In addition, Commercial Real Estate loans on nonaccrual tripled in June compared to the prior quarter.

With widespread weakness emerging and little clarity from lawmakers on additional relief for businesses and consumers alike, banks are clearly in a tough position. Can they hire their way out?

Transitioning Teams from Loan Growth to Loan Resolution

­­­With the number of criticized loans rising at a record rate, the need for workout specialists is accelerating. As banks bolster their resources to proactively deal with this credit crisis, many are struggling to build the teams they need due to both internal and external shortages.

An article recently published in Banking Dive weighed in on this issue, with one expert commenting that “Workout specialists [are] the No. 1 thing that banks are looking for right now. Four months ago, a workout specialist couldn’t find a job anywhere.” But now, everything has changed.

At RMA, we have held hundreds of calls and roundtables and have heard from members that this crisis is unlike any other they have faced.  While there is a need for institutions to build out their workout departments, the lack of experienced personnel remains a concern. Laurie Foster, Associate Director of Credit Risk at RMA, explains the situation and how RMA is responding:

“RMA has always helped our members navigate times of crisis and economic uncertainty. Uniquely, the focus on this cycle of credit quality is driven by an unforeseen event that is impacting businesses and consumers alike. The result is a probable credit crisis of a magnitude of risk banks haven’t faced in a century.”

“The Credit Risk Management Council and our members are voicing a need to make the major shift from loan growth to loan resolution,” Foster said. “Many are dealing with the need to pivot existing personnel to loan workouts as a result, and RMA is here to support them in that journey with a valuable virtual course designed to ease the transition.” 

RMA’s Response: Making Workouts Work for Your Team and Borrowers

Recognizing the potential need to shift to workouts early on, RMA’s Credit Risk Management Council initiated development of a new virtual course on commercial loan workouts called “How to Pivot from Commercial Loan Professional to Effective Workout Banker.”

Now fully realized and available, the course is designed to help commercial bankers – either already a part of loan resolution or transitioning from other roles such as relationship or portfolio manager – develop the very specific, differentiated skillset required to deal with distressed borrowers and achieve the best outcome for all involved.

Taking place across four 90-minute modules from September 15-23, the course is now open for individuals from any bank to enroll. Visit our registration page to sign up today, or contact your RMA Relationship Manger or Laurie Foster, Associate Director of Credit Risk, at to learn more about having this course presented exclusively to your bank.