Rating Commercial Credit Risk What You Need to Know

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Guest: Vin Vieten, former commercial lender and NCUA regulator

https://www.linkedin.com/in/mark-treichel/

Key Points:
1. Credit risk rating systems are a standard practice in commercial lending and now required by NCUA regulations
2. A good credit risk rating system should be dynamic, accurate, and updated regularly
3. Credit risk ratings typically use a scale of 1-8, with 1-4 being "pass" grades and higher numbers indicating increasing risk
4. Both quantitative and qualitative factors should be considered when assigning credit risk ratings
5. Regular monitoring and updating of credit risk ratings can benefit both the credit union and the borrower

Key Quotes:
"Rating credit risk is a standard practice accepted practice. In managing commercial loan risk, all the other regulators focus on it..."

"To be effective, the risk rating system should be accurate at all times..."

"I personally believe that the quantitative is the easy part. It's that qualitative. And that's where your skills as a lender come in."

Resources Mentioned:
1. NCUA Part 723 (MBL/Commercial Lending Rule)
2. NCUA Examiner's Guide on Rating Credit Risk
3. Interagency Guidance on Credit Risk Review
4. OCC Handbook on Rating Credit Risk (2001)

Takeaway: Implementing and maintaining an accurate credit risk rating system is crucial for effective commercial lending management and regulatory compliance.