Financial Institutions Are Making Progress in the CECL Transition – But Not Fast Enough, Warn CECL Experts
As CECL is implemented, the allowance for loan and lease losses, or ALLL, is being called the allowance for credit losses, or ACL.
Austin, Texas, April 8, 2019 – Abrigo, the leading technology provider of compliance, credit risk, and lending solutions for community financial institutions, has released the results from its third annual CECL Survey, which gauges financial institutions’ preparedness for the upcoming transition to the current expected credit loss (CECL) standard.
The 2019 CECL Survey shows that as the Q1 2020 compliance date nears for SEC-filing institutions, progress is being made across the board – but not fast enough, according to CECL experts.
“The clock is ticking,” said Regan Camp, Senior Director of Advisory Services at Abrigo (formerly MST, Sageworks, and Banker’s Toolbox). “While many financial institutions are taking the necessary steps to make sure they are prepared for this important change in accounting for credit losses, it’s clear that others are falling behind their peers.”
One area of concern, according to Camp, is the limited number of SEC-filing institutions that have produced results and are now running parallel CECL-compliant allowances in preparation for 2020. Despite the fact that institutions have been encouraged to plan for at least four quarters of parallel execution in order to offer enough time to observe a series of results and calibrate their models, only 14 percent of SEC registrants surveyed are currently running parallel allowances. Even more concerning, there are still 3 percent of SEC registrants that acknowledged having yet to begin CECL preparations at all.
In addition to gauging financial institutions’ preparedness for the transition, Abrigo also assessed the personnel involved in CECL preparations, the depth, and breadth of data collected, and the methodologies financial institutions are considering using under CECL during the survey. The survey showed differing results between SEC filers, community and mid-market banks, and credit unions. The array of methodologies selected by financial institutions suggests that there really is no “one-size-fits-all” approach to achieve CECL compliance. The survey shows a well-distributed spread across the available methodologies being chosen, suggesting that institutions are carefully assessing what estimation method is most appropriate for their own circumstances.
The 2019 CECL Survey has brought to light that while many financial institutions are taking the steps necessary for the CECL transition, there are also many others that have significant ground to cover in order to catch up to their peers – and not much time left to do so.
To learn more about Abrigo’s 2019 CECL Survey and to download the full report, click here.
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. Visit www.abrigo.com to learn more. Follow Abrigo on social media using @WeAreAbrigo.