Concentration Assessment and Reporting
The current interagency guidance on concentrations of credit makes it clear that an institution’s board of directors has ultimate responsibility for the level of risk assumed by the institution. If the institution has significant CRE concentration risk, its strategic plan should address the rationale for its CRE levels in relation to its overall growth objectives, financial targets, and capital plan.
A robust Management Information System (“MIS”) is key to effective portfolio management. An MIS provides management with sufficient information to identify, measure, monitor, and manage CRE concentration risk. This includes meaningful information on CRE portfolio characteristics that are relevant to the institution’s lending strategy, underwriting standards, and risk tolerances. The information derived from an MIS should be timely, accurate, and clearly indicate changes in the portfolio’s risk profile, including risk rating migration, loss rates, and delinquency. The institution should have a well-defined process to show that the reports and analyses were reviewed and any conclusions regarding changes in concentration risk due to market or other changes.
We can assist with policy development, as well as detailed concentration of credit reporting on a variety of loan types with detailed industry segmentation, for management and the Boards use in monitoring concentrations of credit exposures. We recommend tracking relevant data on the core system or an add-on software program that directly interfaces with the core processor for efficiency and depth of reporting capabilities. Such data management will allow for generating required MIS reports for credit risk management purposes.