Covid 19. Commercial Lender Strategies.
Credit Unions, large and small, have appropriately been communicating their Covid19 operational plans, most often via social media and website updates. Hours of operation, staff availability, and protocols to protect the health of employees and members is critical information to impart.
Now it’s time for CU’s to address business impacts. The pandemic is creating both challenges, and significant opportunities. The present situation provides CU’s with an ability to demonstrate their core value proposition within the communities they serve. Proactive action now, will help ease the burden for your members, and will solidify member relationships in the longer term.
The economic downturn will negatively impact your commercial mortgage and business loan book of business. How, and to what extent, is not yet clear, however now is the time to get in front of the wave.
In respect of credit portfolios, a number of commercial lender strategies can be undertaken:
- Identify those classes/assets within your portfolio which will or are being most significantly affected. The retail and hospitality industries appear to be impacted most significantly. Industrial properties, warehouses, self-storage facilities, perhaps not to the same degree. Use available portfolio data metrics (SIC codes, NAICS codes) to assess your short term exposure.
- Proactively reach out to impacted commercial members, and consider tailor made credit strategies. Payment deferrals, Interest-only payments, interest forgiveness, skip-a-payment, or perhaps lengthened amortization, are but some of the options you can offer. Employ them strategically. Use these credit modifications as an opportunity to shore up your security, with additional collateral, enhanced or additional guarantees, and more frequent member reporting requirements. Use this time to add rigour to your staff underwriting skillset.
- Anticipate an increased level of delinquency, and re-visit your problem loans procedures. Familiarize yourself with available remedies and obligations. Understand which metrics are most critical at this time. In the short term, focus on your members’ cash flow vs. the asset value. Unless no other options are available to you, now is likely not the time to have to take a property back. Present commercial real estate liquidity, and hence value, is uncertain at best.
- Communicate government lending and stimulus programs available to your commercial membership, both directly, and on social media updates The Canadian Credit Union Association posts links to available programs on their website.
- Train/encourage staff to provide timely advice, guidance, and empathy. This is what will set your Credit Union apart. Members will not soon forget the CU’s helping hand during these difficult times.
Credit Unions were first established in Canada, in response to tremendous economic hardship suffered by many, during the Great Depression. In 2020, more than ever, Credit Unions have an important role to play, for all Canadians.