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Abrigo Data Center Lending & Credit Risk C&I Loans CRE Lending Credit Risk Management Loan Pricing Small Business Lending

The lending and credit risk issues that will shape 2025

Mary Ellen Biery
December 31, 2024
Read Time: 0 min
two men and woman around a desk

The major priorities and challenges in lending and credit risk in the year ahead 

Abrigo asked bank and credit union clients and members of our Advisory Services group to identify the trends and challenges that are top of mind.

Key topics covered in this post: 

Top-of-mind topics for lenders and credit risk professionals

As financial institutions enter 2025, the lending and credit risk landscape is evolving rapidly. Abrigo asked dozens of bank and credit union clients and members of the company’s Advisory Services group to identify priorities and challenges that will shape the coming year. From compliance pressures to navigating interest rate dynamics and an increased focus on small business lending, here’s what’s top of mind for lenders and credit risk professionals .

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Regulatory compliance: 1071 in the spotlight

Banking professionals have felt increased regulatory pressure in recent years, and it's likely to remain as a top issue for lenders.

Some industry leaders are hopeful the incoming Trump administration will roll back recent and upcoming regulatory requirements affecting lending and credit, such as the CFPB’s 1071 small business lending data rule. However, with the first  compliance deadline for the CFPB's 1071 small business lending data rule less than six months away, many financial institutions are moving forward with preparations.

Some legal experts believe the industry’s best chance of relief lies in a pending appeal challenging the rule. But oral arguments in the case before the U.S. Court of Appeals for the Fifth Circuit are set for Feb. 3, leaving very little time for the largest lenders affected to comply if the rule is not scrapped or altered.

In the meantime, Abrigo advisors and customers say getting ready for 1071 reporting is a top priority in the year ahead.

“The CFPB’s 1071 small business lending data regulations represent a momentous change in how financial institutions must collect and report data,” said Abrigo Senior Consultant Paula King. The 1071 rule requires lenders to collect and report more than 20 data points on small business credit applications, which will require coordination among multiple departments within the bank or credit union, she said.

The 1071 rule applies to any entity originating 100 or more covered credit transactions annually, and compliance deadlines vary based on origination thresholds, with the earliest deadline set for July 18, 2025. Examiners will focus on fair lending risks tied to 1071 reporting, emphasizing the need for project management, automation, and technology adoption to meet compliance efficiently.

The rule won’t simply mean changes related to small business data collection. King and Abrigo Senior Consultant Rob Newberry have often said many financial institutions will need to revise credit policies, application processes, loan pricing, and other aspects of their lending culture to comply. They advise institutions to begin preparations early to ensure a streamlined and compliant process related to this evolving issue in lending.  

Interest rate risk and profitability challenges

Interest rate risk and how financial institutions can navigate it will remain top of mind for lenders and credit risk professionals. In fact, risk related to interest rate changes is a growing issue for lending and credit risk as additional Fed rate cuts are anticipated, according to Abrigo advisors and customers. With funding costs unlikely to drop as quickly as loan rates, the rate cuts could squeeze net interest margins, making effective repricing strategies for loans and deposits essential.

"A strong pricing tool for both loans and deposits will help institutions be more disciplined in this environment," said Dave Koch, Director of Abrigo Advisory Services. Additionally, he emphasizes the importance of a solid ALM (asset/liability management) model: "You need to be able to evaluate the impact of rate changes using more realistic scenarios for your bank or credit union."

CRE portfolio risk remains a top issue in credit

As interest rates fluctuate, challenges in CRE portfolios are expected to persist.

CRE loans originated five to seven years ago that will reprice or mature in the coming year could pressure pricing sensitivity for solid credits and could lead to increased credit losses for weaker borrowers. Delinquencies have been rising, but charge-offs have remained relatively low, so financial institutions should prepare for potential credit risk escalation.

As a result, it will be important for lenders and credit risk professionals to prepare for the impact of loan renewals and repricing on credit quality. Maintaining solid relationships with CRE borrowers, effective communication, and proactive management of borrower relationships will help financial institutions navigate risks in CRE.

If the narrative on the U.S. economy changes from a “soft landing” to a potential recession and interest rates remain elevated, the consumer’s declining purchasing power and general financial health would add pressure to credit risk and could trigger increasing reserves – not just for CRE but also for credit card portfolios and consumer loans.

Dashboards and management reports powered by a banking intelligence solution will help more financial institutions adapt quickly to trends and changes in lending and credit risk in the year ahead. Banks and credit unions need their data to explore the lending pipeline and projected funding needed. They’ll also rely on data to see credit trends in the portfolio and market, yield insight on pricing, and identify workflow bottlenecks so they can make timely management decisions.

Priority: Looking to small business lending opportunities

While managing risk will always be important to banks and credit unions, the new year should bring a higher level of loan growth, especially for lending to small business borrowers. Small-business optimism from the prospects of lower tax rates and lower interest rates coupled with lenders’ desire to grow the balance sheet should translate into a new focus on small business lending. “From our advisory conversations with our clients, financial institutions are ready to get back to lending in 2025,” said King.

Efficiency will be crucial, however, for institutions seeking to support growth in small business lending, given the likely pressure on net interest margin and new data-collection requirements.

Several Abrigo customers said their institutions will roll out small business lending optimization initiatives that leverage dynamic applications for a better customer experience. They’ll look to increase automation (as long as it has human-in-the-loop capability) to enhance the efficiency of lending processes while helping them comply with 1071 and other regulatory requirements.

Effective pricing strategies will also play a pivotal role in small business loan growth. Lenders will need to manage pricing to remain competitive while protecting net interest margins in a potentially declining rate environment.

Increased use of AI  

Artificial intelligence and automation are transitioning from theoretical concepts to integral components of financial operations. In 2025, financial institutions will increasingly leverage AI to enhance efficiency, manage risks, and meet compliance requirements. Staying informed about the AI issues relevant to lending and credit risk is crucial.

AI will be instrumental in fraud detection, with advanced models identifying emerging fraud patterns, including AI-generated schemes. AI and automation will streamline origination and compliance workflows, such as CFPB 1071 reporting, by simplifying data collection and analysis. Additionally, AI-driven insights will support better loan performance predictions, credit risk management, and portfolio optimization.

The new year promises fresh opportunities for lenders as well as challenges related to credit risk and managing profitability. Understanding the trends and leveraging tools like automation and AI will help financial institutions adapt effectively to the changing environment so they can achieve long-term success. Stay tuned to Abrigo for new live and on-demand webinars for lenders and credit analysts and additional banking resources that will keep institutions abreast of the latest industry developments and advice.

This blog was written with the assistance of ChatGPT, an AI large language model, and was reviewed and revised by Abrigo's subject-matter expert.

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About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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