CEIS Review provides “Bottom Up” loan level Portfolio Stress Analysis engagements to serve as an additional tool for an institutions management team to utilize in anticipating possible risk exposures under several varying scenarios.
Through reviewing institutions regulatory examinations, discussions and feedback with clients, and by staying in sync with our industries best practices, CEIS understands that the regulatory expectations regarding CRE-related portfolio stress testing is focused on a granular loan level stress-testing process and framework to better manage our client’s respective loan portfolios.
Within the analysis, CEIS’ process considers several “what if” scenarios for notable portfolio segments that might cause certain portfolio segments to react in an adverse manner to the client’s intended risk standards. The analysis aims to obtain an anchor point for determining the severity of a downside scenario which could potentially affecting criticized loan levels, loan loss reserves, as well as 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) & 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 has its Stress Testing Programs periodically validated by an outside independent third party.
Stress Testing clients occasionally express their intention of bringing the ST analysis in-house at some point in the future, and in those cases, CEIS will coordinate the transfer of the ST database to the client. CEIS can then “switch hats” from being the Stress Test provider to periodically Validating the Bank’s internal stress test program.
Contact us today to learn more about our “Bottom Up” loan level commercial loan portfolio stress testing program or download our brochure.
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
PHASE 1 Stress Risk Factors
- Inflation impact on hard and soft costs
- Interest rate impact on overall project costs
- Supply chain disruption on completion timelines
PHASE 2 Stress Risk Factors
- Changes in effective rents
- Higher vacancy rates
- Interest rates
- Absorption timelines
- Impact on property values
Contact CEIS Review to discuss if our enhanced CRE Construction Stress Testing may be beneficial to your institution or download our brochure.
Justin J. Hill, Sr. Managing Director