Making credit MIS work for your credit union or bank
In the Winter 2017 issue of the FDIC Supervisory Insights, Michael McGarvey of the FDIC outlined the important role that a credit management information system (MIS) plays in effective credit risk management and other decision-making processes. Specifically, McGarvey mentioned the benefits of reviewing forward-looking risk indicators to create the most meaningful reports.
Although McGarvey, who is an analyst in the FDIC’s Division of Risk Management Supervision, writes this article with banks in mind, a credit union can benefit from improved credit MIS as well, helping credit union management to identify and mitigate sources of unnecessary risk in light of increasingly complex regulatory requirements. Read more about HMDA compliance and the newest MBL rule.
Effective credit risk management information systems
Aside from incorporating forward-looking indicators, here are 6 areas McGarvey suggests paying close attention to when implementing efficient credit risk reporting and examining your credit union’s existing credit MIS programs:
- Documentation
A significant benefit to managing credit through a system is the centralization of data – and therefore, the easy reporting — that it provides. With all member and member business data aggregated, it’s easier for the credit union to run reports on watch lists, problem loans, financial and document exceptions, total exposure, etc.
These reports are only as good as their use-cases, however. McGarvey recommends the credit union document how reports from the MIS are being used to make decisions. An example would be noting the report name and frequency of updates used to build key dashboards. Keeping this documentation transparent will aid in future decision making processes in the event of personnel changes, new systems, etc.
With a banking platform like that provided by Abrigo, many of the key reports that credit union management will need are pre-built and can be scheduled, meaning the right report gets to the right person at the credit union at the right time. This leads us to McGarvey’s second recommendation.
- Timeliness
Reports should be received with enough time to thoughtfully review their findings prior to meetings. For example, if the MIS will compile data for a board meeting presentation, it’s helpful to send the information to board members days in advance of the meeting to compile questions.
The data itself should be accurate and timely as well, which can be much easier when an MIS is effectively deployed.
- Complexity
Make sure you adjust the complexity of the reporting for different audiences within and outside the organization. Some reports may not need to be as detailed, e.g., concentration reports compared to member-exposure reports. MIS for credit can be customized to provide reports that are meaningful for the appropriate audience.
- Ad Hoc Reporting
Since credit risk assessment is a dynamic process, your reporting should adapt alongside the emergence of new risks. Your reporting may need to expand to include a broader array of forward-looking metrics to assess the effects of the new risks. Analytics and Reporting from Abrigo allows credit unions to produce ad hoc reports to gauge portfolio risk.
- Trend Analysis
Trend analysis proves to be very useful in MIS reporting, as it measures long-term patterns. A credit MIS reporting function should include this feature to ensure projections are based off of substantial findings and to help management understand the significance of a change.
- Minimal Averages
“Credit MIS reports that rely heavily on averages to capture the level of risk may miss important aspects of the risks facing banks,” McGarvey explained. “For example, using the average DSCR [debt service coverage ratio] to conclude that a bank’s loans have strong repayment capacity ignores the fact that an average may include loans with inadequate DSCRs that pose direct risk of loss to the bank.”
Read more about products Abrigo offers to support the framework McGarvey prescribes for effective forward-thinking credit MIS.
