“Bottom Up” Loan Level Approach
A “Bottom-Up” loan level Portfolio Stress Analysis engagement is an additional tool for an institution’s Board and Senior Management to utilize in anticipating possible risk and loss exposures under several economic scenarios.
The dynamic multi-scenario analysis tests the borrower’s ability for repayment under mild, moderate, severe, and extreme economic situations. The study outlines how the severity of a downside scenario affects criticized loan levels, loan loss reserves, and capital requirements.
The stress analysis programs can be structured as a “stand-alone” engagement or coupled with a loan review engagement.
- Stand-Alone “Bottom Up” loan level Portfolio Stress Testing– CEIS either receives an accurate and complete set of information from the institution, or assigns CEIS staff to collect the information on the institutions behalf, and then performs the Portfolio Stress Testing analysis with agreed upon scenarios and parameters resulting in a draft and subsequent final report for the client while presenting the findings to management and/or the board.
- Loan Review (LR) and Stress Testing Engagement – CEIS performs the loan review for the institution, and throughout the LR program CEIS’ team captures the loan level financial data as well as other Bank reporting needed for the stress testing analysis. In leveraging on the loan review process, notable efficiency and economic savings are provided to the client most specifically relating to the data collection process.
CEIS Review’s Stress Testing practices are independently validated by a third party CPA firm.
Contact us today to learn more about our “Bottom Up” loan level commercial loan portfolio stress testing program.
CEIS Review has been an important part of our Bank’s commercial lending review function ever since the Bank decided to outsource the annual portfolio review and Stress Testing. CEIS’ professionalism and market insights assists are welcomed strengths to our Credit Risk Management program.
CRE Construction Stress Testing
The CRE construction loan portfolio is considered a more volatile and riskier segment of the overall commercial loan portfolio. For those reasons, in addition to regulatory scrutiny pertaining to construction portfolio growth and concentrations, CEIS has enhanced our CRE Construction Stress Testing approach.
Given the variables that go into financing a construction project pertaining to costs and timing, it is only prudent to further examine this portfolio segment for indications of weakness along the lifecycle of the provided financing, and potentially thereafter.
CEIS’ enhanced CRE Construction Stress Testing addresses each project individually during their a) Project Phase and b) the Completion Phase. By assessing each project by phase, it allows clients to further understand the potential impact that fluctuations in supplies labor interest rates refinance availability and timelines of each project’s effected budget.
- CEIS’ robust repeatable methodology can be applied to land development, commercial construction and residential/commercial condominium development transactions
- Transaction-based approach rolling up to the segment level
- Two-Phase View
- Project Phase: focus on finance risk for cost of completion: Budget vs Actual
- Completion Phase: Refinance risk takeout financing
- Two levels of stress to each transaction: 1) Moderate and 2) Severe.
- Customized stress based on CRE segments. locations, current, and future market conditions
- Forward looking to identify strengths and weaknesses
- Transaction- to segment-level analysis
- Detailed data per exposure included in the stress test
- Customizable to client-specific requests
- Detailed reporting enabling actionable insights for management and the BOD
- Customizable, multivariable approach
- Multiformat results: Project vs Completion; Moderate vs Severe stress