Identify the Signs of Financial Stress

Credit risk management tools help CUs make loans to high-risk members.

By Patrick Totty

In the past, only the largest credit unions concerned themselves with credit risk management, says Steve Miller, CPA, director of operations at TwentyTwenty Analytics, a CUNA Strategic Services alliance provider.

That has changed.

“Now,” Miller says, “any credit union that’s not doing credit risk management faces risks—either criticism from regulators or danger to the bottom line from loans it didn’t properly assess for risk.”

Fortunately, he says, credit unions now have tools that can provide timely and accurate measurements of risk that allow them to quickly assess how well their loans are performing.

“Also, over the past few years we’ve seen a trend where the costs are actually decreasing as the credit bureaus and other companies that provide risk-related data are competing for your business.”

Trevor Carone, Experian’s vice president, portfolio and collection solutions, agrees that today’s lending environment has changed dramatically. “Nobody wants to repeat what happened a few years ago,” he says. “Credit union leaders have issued clear directives to their staff: Comply with all new regulations and improve the accuracy and predictability of your credit risk assessment procedures—or don’t lend.”

As a result, most credit unions are now bifurcating their portfolios, Carone says, by quantifying stress. “They’re more vigorously pursuing internal and external lending markets, and they’re looking closely at who’s still in financial stress.

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