TOPIC: Disaster Recovery

How to Manage Credit Risk in a Recession: A Series Examining Best Practices | Webinar Series

Credit risk management is a cornerstone of community banking. How can your financial institution grow while also effectively managing the risk in the portfolio? Many bankers are asking this question right now, given that this could be their first recession in banking or because this recession is so different than previous ones due to the COVID-19 pandemic.

In this 4-part webinar series, join credit risk experts as they walk through best practices for operating in this unique credit environment.

Session topics are: 
  • Part 1: Credit Memo (7/22) 
    • How does an economic downturn alter the credit memo’s content and process?
    • What are the right questions to ask and how can those answers be factored into future recommendations?
  • Part 2: Loan Grading (7/29)
    • How should institutions tweak loan grading in the face of a recession?
    • How should specific sectors be treated?
  • Part 3: SBA 7(a) Lending (8/5)
    • How can this program be used to hedge credit risk?
    • What would an institution need in order to get going?
  • Part 4: Loan Pricing (8/12)
    • Should pricing vary by loan type?
    • How should strategies change during a recession?

Register for the series. 

    Barclays' Outlook on Coronavirus Impact - Trade, Economy, Banking System Resilience, etc.

    Hi CBANC community! I wanted to share some market insight we received from our banking partner, Barclays. Just one opinion and obviously there's still a lot left to unfold but figured I'd share! Doc attached for download as well. 

    Brief summary of the Barclays coronavirus client call on Friday:

    Macroeconomic
    • Significant reduction in global growth prospects for H1 expected, with impact greatest in particularly vulnerable regions (China, Japan, South Korea, Europe)
    • Most impacted parts of the economy include the travel sector, commodities (particularly oil) and SMEs
    • Ongoing uncertainty about outlook beyond H1, driven largely by uncertain public health forecast and effectiveness of virus containment and economic measures
    • Coordination of monetary and fiscal policy to respond to the crisis is not only encouraged, but also expected (i.e. “baked into” market expectations) – as a result, expect little impact when it does occur but significant adverse impact when it doesn’t (see market response to ECB not reducing rates last week)
    Banking system resilience
    • Banking system is more resilient to respond to a credit crunch due to reforms on bank capital and liquidity requirements put in place in response to the Global Financial Crisis
    • As a result, risk of systemic failure emanating from the financial system have reduced (but not disappeared)
    • Trading floors globally have not been stress tested to a scenario where everyone has to work from home to date; however, in Asia there have been contingency measures in place for the past 4-6 weeks requiring staff to work from multiple locations, with little to no impact on functioning of global capital markets 
    Capital markets
    • Turbulent forecast even prior to coronavirus, due to unstable US/China trade outlook and Brexit
    • In moments of market uncertainty, there is typically a shift towards “save haven” assets (e.g. USD, JPY, gold). However, what we have seen over the past 1-2 weeks is a flight to liquidity (even gold price declined) as institutional investors engage in broad liquidation of their positions in an attempt to manage risk
    • In FX markets:
      • Volatility is back both among G10 and especially emerging markets currencies
      • Emerging markets liquidity has deteriorated over the past 1-2 weeks, trades executed at wider spreads
      • G10 liquidity has been more stable with lower impact on spreads (impact particularly felt on forwards)
    • Last week capped the most turbulent stretch since 2008

    Trade
    • Barclays do not currently see any extraordinary requests about additional working capital – utilisation levels in line with expectations
    • Feedback from corporate clients as follows: (i) lower stock and inventory levels, (ii) lower orders and production levels, (iii) cutbacks in production days, (iv) difficulty in finding additional suppliers to reduce their concentration risk
    • Sporadic but patchy reports that Chinese production is starting to come back to normal; however, these improvements likely to be offset by disturbances to both demand and supply in Western economies that are undergoing lockdowns
    • As this becomes a demand problem, quality of debtors becomes important – likely to result in working capital issues