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Credit costs slowly moving higher but to manageable levels - S&P Global Despite the fierce scrutiny and fear over the group's commercial real estate exposures, community banks continue to see minimal stress in their borrowing base. We do expect that stress to continue to build later in 2024 and become more pronounced in 2025, resulting in higher credit losses. Banks have tried to prepare for slippage by tightening lending standards and building reserves for loan losses. Regulatory pressures to reduce commercial real estate concentrations have also discouraged some community banks from growing their balance sheets notably since the institutions have greater exposure to the asset class. Regulators have reiterated the importance of banks maintaining strong risk management of their CRE portfolios, particularly for institutions with elevated CRE concentrations. In a number of cases, regulators have encouraged banks with elevated CRE concentrations to raise capital, particularly in the context of acquisitions.

Credit costs slowly moving higher but to manageable levels - S&P Global Despite the fierce scrutiny and fear over the group's commercial real estate exposures, community banks continue to see minimal stress in their borrowing base. We do expect that stress to continue to build later in 2024 and become more pronounced in 2025, resulting in higher credit losses. Banks have tried to prepare for slippage by tightening lending standards and building reserves for loan losses. Regulatory pressures to reduce commercial real estate concentrations have also discouraged some community banks from growing their balance sheets notably since the institutions have greater exposure to the asset class. Regulators have reiterated the importance of banks maintaining strong risk management of their CRE portfolios, particularly for institutions with elevated CRE concentrations. In a number of cases, regulators have encouraged banks with elevated CRE concentrations to raise capital, particularly in the context of acquisitions.

Does your loan review program enable you to proactively detect and mitigate potential risks? In "Making the Case for Independent Loan Review," CEIS Review offers valuable insights into the importance, structure, and advantages of an effective independent loan review program. Receive a copy of CEIS Review's "Making the Case for Independent Loan Review" to plan or evaluate your Institution's loan review program

There is "a broader trend in which regulators react much more quickly to any concerns they may have, handing out MOUs like traffic tickets, matters requiring attention (MRAs), matters requiring immediate attention (MRIAs) and downgrading CAMELS ratings instead of giving out warnings" Commercial Real Estate "Community banks should come armed with detailed data and presentations on their CRE books, pointing to aspects such as owner versus non-owner occupied, geographic makeup & property type, Seigel said. Banks should also conduct stress tests on the portfolios" Contact CEIS Review for your CRE portfolio credit evaluation and commercial portfolio stress-testing needs - CRE, C&I, and Construction Projects.

"The Federal Reserve is proactively working with banks to bolster their resilience in preparation for unexpected shocks to the financial system. The Fed is specifically pushing banks to increase their loan loss provisions, Cook said. This includes stress in commercial real estate (CRE)", specifically office & construction exposures. Contact CEIS Review for a granular Loan Review portfolio assessment and Portfolio Stress Testing exercise to appropriately determine adequate loan loss provisions.

With the recent failures and regulators now taking a harder look, it is more important than ever for acquirers and sellers to obtain an objective, thorough, and comprehensive portfolio due diligence review. We at CEIS Review are proud to have conducted billions' worth of commercial due diligence portfolio reviews in just a few years. Our assignments involve a dedicated team of 2 to 10+ professionals, ensuring adequate staffing for a thorough and comprehensive portfolio assessment. 

The CRE construction loan portfolio is considered to be a more risky and volatile segment of the overall commercial loan portfolio. Therefore, due to regulatory scrutiny regarding construction portfolio growth and concentrations, CEIS has taken steps to improve its CRE Construction Stress Testing approach.

CEIS Review shares fourth-quarter portfolio quality data trends along with our market & regulatory observations.

Established in 1989, CEIS Review has been providing industry-leading Commercial Loan Review programs to Financial Institutions for over 30+ years. CEIS Review advises community banks, regional banks, money center banks, international banks, finance companies, and other specialty commercial lending organizations. 

CEIS Review is regularly requested to assess an Institution's Loan Review function to ensure it is operating independently and in accordance with regulatory guidelines while incorporating leading industry best practices. https://lnkd.in/eRJmH8KF