Commercial Portfolio Checkup

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Economic fundamentals have moved at a historic pace with a significant GDP drop in Q2 2020. This has driven lenders to continue finding ways to best identify the risk in one of the most opaque asset classes: commercial debt. As the expectation for an impending increase in net charge-offs (NCOs) continues to grow, lenders are bracing for downward credit migration in wholesale credit portfolios. This deterioration trend is causing lenders to tighten credit standards and boost their portfolio monitoring processes.

How do you define your watchlist when an increase in traditional indicators of risk becomes typical? Moody’s Analytics has worked with hundreds of financial institutions of all sizes over the past few months, sharing insights and key considerations to better understand the risk and exposure in portfolios. We have taken key insights from those discussions in the form of data, analysis, and processes to create an early warning framework that can be easily updated as the economy changes.

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