Managing Your Credit Union’s Loan Data
Credit unions face a distinct challenge in that, generally, borrower data for a credit union is stored in several different core processing or decisioning systems. These data silos make it all the harder for credit unions to begin data archiving. There are more sources from which to pull information and, probably, fewer IT resources that can focus on data management at a credit union.
Abrigo helps our clients overcome this data challenge through a customized core integration, but how can a credit union gather loan-level data?
In this model, the credit union will use a provider like Abrigo to create a data bridge between the institution’s core data and an ALLL solution. This method certainly introduces the most change for the credit union so it may or may not be appropriate for each institution.
Tackle the CECL transition with Abrigo’s ABA-endorsed CECL solutions, Sageworks ALLL and MST Loan Loss Analyzer.
Once the credit union can, using one of these methods, access historical loan-level data on its portfolio, there are a few added benefits that the risk management team can leverage:
- More defensible, documented calculations
- Easier process for balance reconciliation as part of the ALLL
- Less subjectivity in forward-looking assumptions under CECL
- Ability to enhance the ALLL with more sophisticated loss rate calculations including migration analysis or PD/LGD
- Opportunity to create different ALLL (and stress testing) scenarios to see the impact model tweaks might have on the reserve – this includes testing how CECL will impact capital
- Backtesting to validate the model’s accuracy over time
- Better portfolio reporting to understand risk
Portfolio reporting with loan-level data can be extended to cover:
Loan-level detail for the portfolio enables a credit union to track the movement of loans from each segment to determine how the portfolio is changing. How is the portfolio shifting? Is there substantial growth in one concentration? Should the credit union shift focus to another area?
Similarly, delinquency rates by concentration will give greater clarity into where portfolio risk may be increasing. If these pockets of risk are uncovered, the credit union can do something (e.g., change loan pricing models, adjust risk appetites, better monitor TDR activity) to mitigate risk moving forward.
The credit union can also review loans by segment to see which loans provide the best chance of obtaining a recovery based on historical data. This allows the institution to potentially reallocate resources including workout officers or special assets officers to maximize dollars returned to the credit union.