PHILADELPHIA CREAM, June 12, 2020 / PRNewswire / – The Risk Management Association (RMA) Has Released “Guidelines for Risk Rating Loans During the COVID-19 Period” to assist financial institutions in their loan rating process during unprecedented economic uncertainty of the COVID-19 pandemic.
At a time when historical disruptions limit the effectiveness of traditional credit assessment processes, the paper examines methods for:
- Sort loan portfolios to more easily discern risks based on the degree of impact of COVID-19.
- Develop and use alternative information to compensate for the lack of indicative financial information.
- Define triggers to monitor the deterioration of risk mitigation factors.
- Carefully balance the results of risk assessment models with expert judgment.
The Guidelines, a draft of the newly formed RMA Risk Ratings working group, are designed to complement existing internal bank credit risk rating frameworks, protocols and guidelines. They are considered a living document, which must be informed by new information as the future course of COVID-19 becomes clearer.
“Due to economic uncertainty and closures caused by COVID-19, a borrower’s current financial reports are, more than ever, not necessarily an indication of a repayment capacity,” said Jean Baier, Senior Associate Director of RMA, Credit Risk. “In this environment, alternative information must be rapidly developed and applied. RMA’s “Guidelines for Risk Rating Loans During the COVID-19 Period” suggests practices that lenders can incorporate into their analysis to ensure that loans are rated accurately. “
“The Risk Assessment Working Group is an example of the RMA community working together for the good of the industry,” RMA President and CEO Nancy foster noted. “This sharing of perspectives and practices is always important, but especially during this crisis.”
The guidelines are available to RMA members here.
Founded in 1914, the Risk Management Association is a non-profit, member-driven trade association whose sole purpose is to advance the use of sound risk management principles in the financial services industry. RMA promotes an enterprise approach to risk management that focuses on credit risk, market risk and operational risk. Based at Philadelphia, Pennsylvania, RMA has 1,900 institutional members which include banks of all sizes as well as non-bank financial institutions. They are represented within the Association by 18,500 people spread over the entire territory. North America, Europe, Australia, and Asia Pacific.
SOURCE The Risk Management Association