This paper addresses the following:
• Rising commercial lending delinquency concerns
• Potential risks in upcoming CRE loan maturities
• Industry and regulatory concerns for 2024
• Mitigating risk through independent loan and portfolio reviews
• Introduction to MBL Risk Analytics

Your commercial loan portfolio is a living, continually changing entity. Bank and credit union commercial loan portfolios are compilations of living expectations and covenants that, left unmonitored, may exceed risk tolerance limits, erode liquidity and trigger institutional failure.

Lenders make credit decisions based almost exclusively on present facts, historic performance trends, and financial projections. In other words, we bet the future on past events or projections. To be clear, after the commercial loan has been funded, boarded, and all the documents have been neatly filed away, things change.

Life goes on. People change. Priorities change. Environments change. Repayment capacities change. While the business owner continues to focus on what she or he does best, the world continues to evolve. Political, economic, environmental, state and local events are fluid. Competition, human resources and other increased costs of doing business trigger operational changes that impact the borrower’s ability to service the debt. In other words, credit risk does not stop when the loan docs are filed.

Credit risk continues to change and independent loan portfolio monitoring – the ongoing evaluation and analysis of a financial institution’s loan portfolio - is no less important than the everyday monitoring of an individual’s investment portfolio to proactively identify and manage risks.

In most cases, the original loan documents include loan covenants – minimum financial performance standards – that the borrower must meet not just at the onset, but during the term of the loan in order to maintain good standing and minimize risk to the lender. However, as time goes on, covenants and other performance requirements become forgotten or more and more difficult to fulfill and, without a continuous, proactive independent loan and portfolio management process, lenders may not be aware of a borrower’s failure to comply with those performance standards until they are in default. Effective loan and portfolio management enables timely, proactive steps that can be taken by both lender and borrower to avoid default.

Commercial real estate loans delinquency is heading in the wrong direction. Delinquency rates for mortgages backed by commercial properties increased during t...

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