Lending’s big game: Leveraging predictive forecasting to manage risk

In the dynamic landscape of the financial industry, credit unions are constantly navigating a field of uncertainties. From economic fluctuations to regulatory changes, the challenges they face are diverse and often unpredictable. In this era of rapid technological advancement, however, there is a powerful tool that can empower credit unions to not only weather the storm but to navigate it with precision — predictive forecasting.

Credit unions need to be able to balance growth and yield with targeted adjustments to pricing and campaign strategies. Luckily, siloed reports and the guesswork that goes into a strategic plan can be a thing of the past for your credit union with the adoption of predictive forecasting tools — as the key to sound decision-making and optimizing risk and return is the ability to leverage them.

Why predictive forecasting? In a nutshell, it’s the best way to predict the future without a crystal ball! Utilizing a predictive forecasting tool gives you the ability to use big data to guide your decisions and enable concrete actions so you can identify potential risks associated with your borrowers. Some of these tools can even combine analyzing and adapting your portfolio, pricing, capital allocation, and risk management strategies into one (risk-reduced) system.

Give me a “D” (for data)!

Consider data to be your credit union’s preseason. By leveraging historical data and sophisticated algorithms, predictive forecasting tools can analyze patterns and trends, offering insights into potential future risks. A primary advantage of predictive forecasting is its ability to mitigate risks effectively — by using historical data and current market trends, these tools can identify potential risks before they become too risky. However, the accuracy and reliability of predictive models rely on the quality of the data it is analyzing. Leverage internal and economic, regional, and peer data to get a broader perspective that will enhance the power of the tools.

Playing defense

Don’t make any big plays — unless it is backed by analytics! You should be empowered to make immediate, critical decisions when it comes to lending. Reducing the risks associated with these important choices not only makes the decision-making process quicker, but more educated when based on real market scenarios and data. Before lining up for the [critical decision] kick-off, keep these risk reducers in mind:

• Target collections to high-risk/high-value pools
• Stress test to identify risks
• Plan loan retention programs as rates fall
• Set loss reserves for recession risk and student loan repayment

By utilizing predictive forecasting, you’ll be able to enhance your risk assessment and management practices, learn and understand member behaviors, develop custom products and services, and strategically expand your organization.

Playing offense

Preparing your 2024 strategy is as critical as the aforementioned decisions you need to be empowered to make. It’s vital to look ahead, and not just behind, when planning your next move. Connecting with an expanded data ecosystem that predictive forecasting tools can provide not only enables a proactive look forward, but can also make recommended actions based on select criteria and challenges, as well as integrate with economic forecasts to project income, yield, and volume for pricing strategies while taking risk into account. In addition, benchmarking and M&A analysis can give foresight into how you stack up against the competition.

It’s game time

You make a myriad of decisions daily, from managing risks to planning future growth. These decisions cannot be taken lightly and are no longer limited to gut instincts and historical data alone. They now require a more complex approach. With predictive forecasting tools, having access to a deep network of data enables insights that empower proactive actions that can reduce risk and increase revenue growth.