Tag: portfolio growth
Automate your credit limit management process to better serve your customers and quickly respond to the volatile market.
View our interactive e-book for the latest economic and consumer trends and learn how to set your portfolio up to succeed in any economic cycle.
Today’s mortgage market is challenging. Read our Q&A with Experian's Susan Allen to discover best practices for leveraging data for profitable growth.
What goals should you set to make financial inclusion a reality? How can success be quantified? This checklist can help you become more inclusive.
Lenders are increasingly under pressure to improve access to the financial system and help close the wealth gap in America. Read more!
Experian recently launched Experian GO, a first-of-its-kind program aimed at helping credit invisibles take charge of their financial health. Read more!
Forrester recently named Experian to their Programs of the Year awards, which recognize outstanding achievements in sales, marketing and product functions.
To grow in today’s economic climate and beat the competition, financial institutions need to update their acquisition and cross-sell strategies.
A high-level review of risk-adjusted yields across three common retail products offered by credit unions show that credit cards can be very profitable.
As financial institutions navigate COVID-19’s economic impact, the best credit portfolio management practices are fundamental.
While some businesses will look to loss forecasting to potentially reduce the severity of impact from COVID-19, for many, it is the key to survival.
Leverage the strength of today's economy to solve your most complex problems. Recession readiness means proactively managing your portfolio today.
What is CECL? CECL (Current Expected Credit Loss) is a new credit loss model, to be leveraged by financial institutions, that estimates the expected loss over the life of a loan by using historical information, current conditions and reasonable forecasts. According to AccountingToday, CECL is considered one of the most significant accounting changes in decades to affect entities that borrow and lend money. To comply with CECL by the assigned deadline, financial institutions will need to access much more data than they’re currently using to calculate their reserves under the incurred loss model, Allowance for Loan and Lease Losses (ALLL). How does it impact your business? CECL introduces uncertainty into accounting and growth calculations, as it represents a significant change in the way credit losses are currently estimated. The new standard allows financial institutions to calculate allowances in a variety of ways, including discounted cash flow, loss rates, roll-rates and probability of default analyses. “Large banks with historically good loss performance are projecting increased reserve requirements in the billions of dollars,” says Experian Advisory Services Senior Business Consultant, Gavin Harding. Here are a few changes that you should expect: Larger allowances will be required for most products As allowances will increase, pricing of the products will change to reflect higher capital cost Losses modeling will change, impacting both data collection and modeling methodology There will be a lower return on equity, especially in products with a longer life expectancy How can you prepare? “CECL compliance is a journey, rather than a destination,” says Gavin. “The key is to develop a thoughtful, data-driven approach that is tested and refined over time.” Financial institutions who start preparing for CECL now will ultimately set their organizations up for success. Here are a few ways to begin to assess your readiness: Create a roadmap and initiative prioritization plan Calculate the impact of CECL on your bottom line Run altered scenarios based on new lending policy and credit decision rules Understand the impact CECL will have on your profitability Evaluate current portfolios based on CECL methodology Run different loss methods and compare results Additionally, there is required data to capture, including quarterly or monthly loan-level account performance metrics, multiple year data based on loan product type and historical data for the life of the loan. How much time do you have? Like most accounting standards, CECL has different effective dates based on the type of reporting entity. Public business entities that file financial statements with the Security and Exchange Commission will have to comply by 2020, non-public entity banks must comply by 2022 and non-SEC registered companies have until 2023 to adopt the new standard. How can we help: Complying with CECL may require you to gather, store and calculate more data than before. Experian can help you comply with CECL guidelines including data needs, consulting and loan loss calculation. Experian industry experts will help update your current strategies and establish an appropriate timeline to meet compliance dates. Leveraging our best-in-class industry data, we will help you gain CECL compliance quickly and effectively, understand the impacts to your business and use these findings to improve overall profitability. Learn more
With Hispanic Heritage Awareness Month underway and the topic of growing membership a constant priority, here are some tips from a credit union CEO.
The desire to return to portfolio growth is a clear trend in mature credit markets, such as the US and Canada. Historically, credit unions and banks have driven portfolio growth with aggressive out-bound marketing offers designed to attract new customers and members through loan acquisitions. These offers were typically aligned to a particular product with no strategy alignment between multiple divisions within the organization. Further, when existing customers submitted a new request for credit, they were treated the same as incoming new customers with no reference to the overall value of the existing relationship. Today, however, financial institutions are looking to create more value from existing customer relationships to drive sustained portfolio growth by increasing customer retention, loyalty and wallet share. Let’s consider this idea further. By identifying the needs of existing customers and matching them to individual credit risk and affordability, effective cross-sell strategies that link the needs of the individual to risk and affordability can ensure that portfolio growth can be achieved while simultaneously increasing customer satisfaction and promoting loyalty. The need to optimize customer touch-points and provide the best possible customer experience is paramount to future performance, as measured by market share and long-term customer profitability. By also responding rapidly to changing customer credit needs, you can further build trust, increase wallet share and profitably grow your loan portfolios. In the simplest sense, the more of your products a customer uses, the less likely the customer is to leave you for the competition. With these objectives in mind, financial organizations are turning towards the practice of setting holistic, customer-level credit lending parameters. These parameters often referred to as umbrella, or customer lending, limits. The challenges Although the benefits for enhancing existing relationships are clear, there are a number of challenges that bear to mind some important questions to consider: · How do you balance the competing objectives of portfolio loan growth while managing future losses? · How do you know how much your customer can afford? · How do you ensure that customers have access to the products they need when they need them · What is the appropriate communication method to position the offer? Few credit unions or banks have lending strategies that differentiate between new and existing customers. In the most cases, new credit requests are processed identically for both customer groups. The problem with this approach is that it fails to capture and use the power of existing customer data, which will inevitably lead to suboptimal decisions. Similarly, financial institutions frequently provide inconsistent lending messages to their clients. The following scenarios can potentially arise when institutions fail to look across all relationships to support their core lending and collections processes: 1. Customer is refused for additional credit on the facility of their choice, whilst simultaneously offered an increase in their credit line on another. 2. Customer is extended credit on a new facility whilst being seriously delinquent on another. 3. Customer receives marketing solicitation for three different products from the same institution, in the same week, through three different channels. Essentials for customer lending limits and successful cross-selling By evaluating existing customers on a periodic (monthly) basis, financial institutions can assess holistically the customer’s existing exposure, risk and affordability. By setting customer level lending limits in accordance with these parameters, core lending processes can be rendered more efficient, with superior results and enhanced customer satisfaction. This approach can be extended to consider a fast-track application process for existing relationships with high value, low risk customers. Traditionally, business processes have not identified loan applications from such individuals to provide preferential treatment. The core fundamentals of the approach necessary for the setting of holistic customer lending (umbrella) limits include: · The accurate evaluation of credit and default risk · The calculation of additional lending capacity and affordability · Appropriate product offerings for cross-sell · Operational deployment Follow my blog series over the next few months as we explore the essentials for customer lending limits and successful cross-selling.