Managing Your Credits Through the Crisis

As economies begin to reopen, it is difficult to quantify the full impact of the coronavirus pandemic and the economic shutdown on the credit portfolios of banks. It is unlikely we will be able to fully quantify the impact for some time; we will wait to see which industries are successful in reopening and adjusting to the new normal with social distancing, and which industries continue to struggle (e.g., airlines, travel, commercial real estate, small businesses). We cannot be certain how severe or mild the impact will be, but there will be impacts on banks’ credit portfolios.

The US government has gone to extensive lengths to help banks and Main Street borrowers through these challenging times. The Federal Reserve has extended its Main Street Lending Program. The US Treasury has made over $400 billion available through the Small Business Administration’s Paycheck Protection Program. These programs not only aim to help borrowers and lenders weather the storm, but also put in perspective how broad the current crisis is and how difficult it is to forecast the impact on banks’ balance sheets and income statements. Therefore, banks need to prepare for potential losses and begin managing their credits actively for the period when government backstops expire.