Loan Portfolio Stress Testing

CRF Advisors has developed and executed a methodology for evaluating the current state of a Bank’s commercial loan portfolio and to perform a stress test on this portfolio. Loan portfolio stress testing has become a pivotal tool in risk management due to concerns surrounding the changing real estate environment and the increase in commercial lending activities over the last five years. Stress testing provides organizations the tools to become proactive with their loan portfolios during the life of each loan, monitor borderline loans, and identify loans that may migrate to an impaired status. This would significantly reduce bad loans and improve overall credit quality of the portfolio.

CRF Advisors utilizes our stress test software and information provided by management to identify potential areas of risk and to determine the impact on risk ratings and earnings. Our model focused on key factors that include debt service capacity and collateral adequacy that provides a satisfactory foundation for assessing an institution’s loan portfolio during changes in market conditions. The stress model creates stress ratings based on Loan to Value (LTV) and Debt Service Coverage (DSC) ratios for past, current, and future conditions. Parameter stress tests assumptions were used based on discussions with management and CRF Advisor’s independent internal risk assessment.