The October edition of The RMA Journal features an article on the top credit risks of 2021 as identified by RMA’s Credit Risk Council.
The article notes, “There is rising concern that CRE concentrations, which played such a large role in the S&L crisis and the global financial crisis—and which have been rising over the past six years—could once again spell trouble. That could be the case in the long term as well as the near term, as work-from-home arrangements that took hold during the pandemic become permanent for many. While economists and industry watchers disagree on what the office market will look like in the years to come, a May paper by the Atlanta Fed advised that ‘investors should monitor current office market vacancy rates to best prepare to operate in an environment with sustained high vacancy rates.’ The news is brighter for industrial CRE, including the growing use and demand for warehousing as online shopping continues to dominate. The mixed picture and uncertainty are part and parcel of the pandemic, and a reason that the Credit Risk Council encourages the use of RMA’s Guidelines for Risk Rating Loans in the COVID-19 Period, which was informed by the Council. It was inspired by the fact that reliance on historical financial information will be of limited help during the current period. In concert with the application of expert judgment, alternative information must be analyzed to inform the final risk rating.
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