Lighthouse Community Credit Union Sees Improved Loan Portfolio Management with TCT Risk Solutions
“Don’t lend money to family or friends; it causes them to get amnesia,” is a saying that provides a down–to–earth description of credit risk. When a credit union extends money in the form of a loan to a member, the credit union needs to make sure they remember to pay the money back.
Members who borrow from a credit union usually have every intention of repaying the loan. However, situations may change for members in ways that reduce or increase their ability to pay. Monitoring and responding to these changes are the basis of effective credit risk management.
Strategic Link partner, TCT Risk Solutions, offers a comprehensive, coordinated risk management Credit Migration tool for credit unions to manage loan portfolio risk and effectively prepare for implementation of the Financial Accounting Standards Board’s new Current Expected Credit Loss, or CECL, rules.
“We have used TCT Risk Solutions for two years and couldn’t be happier,” said Lighthouse Community Credit Union President and CFO, Steve Bernhoft. “They have great, responsive staff producing timely reports with an efficient process and system.”
To illustrate different loan risk scenarios, consider these four sample members:
- Ruth is a long-term member with a stable lifestyle and consistent habits. She takes few, well–calculated risks and for this reason her credit condition remains fairly constant over many years.
- Henry is also a long-term member who has used multiple credit union services. He has maintained a prime credit standing but recently had a financial setback and his credit standing plunged from A to D.
- Liz is a credit “newbie.” She recently obtained her first career job and her first car loan from the credit union. Over the next year she is careful with payments and credit and builds an A+ credit score.
- John has been through some tough times, losing his job and seeing his credit score drop to a D. He worked hard to learn new skills and get a new job. He obtained a car loan from the credit union and paid it back as expected. He also repaired his credit by clearing old debts. His credit score is now an A.
These four individuals represent a variety of borrowers at a credit union. So, why should you care to know about Henry and John? Henry accounts for 60 to 80 percent of all loan losses. On the other hand, John becomes the most loyal and low–risk of all members.
The key to portfolio management is to identify each group early on and take appropriate action to minimize loss from Henry and increase loans and services to Liz and John. Credit Migration is a powerful tool to manage the risk in a credit union’s loan portfolio and know your members.
Tiered decisioning coupled with the Credit Migration tool has helped many credit unions lend more efficiently and profitably, and help them prepare for CECL. Could it do the same for your credit union? To learn more, register for a webinar on March 13 at 10 a.m. PDT, 11 a.m. MDT, for an introduction to Credit Migration basics.
For more information about TCT Risk Solutions, contact Northwest Credit Union Association Strategic Partnerships Manager, Corina Ruiz. To learn more about Strategic Link’s partnership with TCT Risk Solutions, visit its webpage.