Looking for Banker’s Toolbox? You are in the Right Place!

Banker’s Toolbox is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the login button here, or the link in the top navigation, to log in to Banker’s Toolbox Community Online.

Make yourself at home!

Looking for MainStreet Technologies? You are in the Right Place!

MainStreet Technologies is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the contact us button here, or the link in the top navigation, to reach product support for your MST products.

Make yourself at home!

Looking for Sageworks? You are in the Right Place!

Sageworks is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the login button here, or the link in the top navigation, to log in to your Sageworks products.

Make yourself at home!

Managing risk in MBL: Best practices and comprehensive strategies for credit risk management

by: Sageworks

The NCUA passed a new MBL rule, effective January 1st of this year. This is part of larger efforts to expand credit unions’ ability to expand their commercial lending portfolios.

As a recent Sageworks blog post on the new MBL rule explains,“one key aspect of the new rule is the clarified distinction between Commercial Loans and Member Business Loans, and the affirmation that ‘non-member loan participations do not count against the statutory MBL cap’”.

The purpose of the new rule is to give credit unions more flexibility to implement principle-based risk management processes and policies. This means it’s important that credit unions reevaluate their risk management strategies.

As part of a Sageworks’ video series addressing some of the challenges and questions around credit analysis, Garrett Morris, senior risk management consultant at Sageworks, identifies three key risk areas in member business lending: Can the borrower pay, will the borrower pay, and what happens if borrower does not pay? Morris provides solutions to mitigate these risks:

1. To analyze whether the borrower can pay, examine their financial and cash flow position, especially their debt-service coverage ratio (DSCR). Morris says looking at the borrower’s DSCR along with their ability to repay their  past debt has become an industry trend. Ensure that the credit union maintains a comprehensive understanding of the borrower’s financial capacity for the duration of the relationship.

2. To predetermine whether the borrower will pay requires an assessment of their character. Take a look at characteristics like the borrower’s management experience or how long they have been in business. Also consider how long they have banked with the institution.

3. Even for trustworthy borrowers, the credit union should make sure they have adequate collateral securing the loan. That collateral should also be accessible and recently appraised.

4. CUNA suggests establishing a formal credit risk rating system to assign a risk rating to each commercial loan in the portfolio. The system should vary depending on the complexity of the commercial loan portfolio.

The new MBL rules enables credit unions to take advantage of expanding opportunities in commercial lending. As credit unions increase their exposure to the unique risks that come with growing the MBL portfolio, it will be increasingly important for credit unions to review credit risk management processes.

To learn more about the MBL and the new rule, check out Sageworks MBL Starter Kit.

About the Author

Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest real-time database of private-company financial information in the United States. The company was acquired in 2018 and is now part of Abrigo.

Full Bio

About Abrigo

Abrigo is a leading technology provider of compliance, credit risk, and lending solutions that community financial institutions use to manage risk and drive growth. Our software automates key processes — from anti-money laundering to fraud detection to lending solutions — empowering our customers by addressing their Enterprise Risk Management needs.

Make Big Things Happen.