Lending Perspectives: Why risk-based decisions are hard
How to explain the value of caution to non-lending colleagues as many ‘typical’ borrowers start to feel the impact of the changing economy.
It seems as though risk-based lending and taking on more credit risk are perceived to be an easy way for credit unions to boost their growth during times of economic expansion. Yet it’s not as easy as it appears to be.
After being in the lending business 35 years and spending 30 years at the senior management level, I’ve developed what I call “lender’s inferiority complex.” When times are good, the feedback is that you’re not doing well enough. If your credit union is growing loans at 12 percent, you get asked why you’re not growing at 20 percent like the financial institution down the street.
There are good reasons for credit unions to be cautious about risk-based lending, even when economic times are good. As we approach the end of a record-length economic expansion, I’m going to write several installments of this column about how to explain the value of caution in risk-based lending to your colleagues, as thoughtful lending will be even more important as the economy shifts. I hope these will be helpful as you assess your portfolios and explain to your colleagues what you’re doing.
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