Friday, February 23, 2018

Credit Management Information System

A critical part of credit risk management is the ability to identify credit risk.

An article in the Federal Deposit Insurance Corporation's Supervisory Insights looks at credit management information systems. The article argues that a comprehensive credit management information system needs to employ forward-looking risk indicators, just not lagging risk indicators.

Lagging risk indicators include merics, such as charge-off rates, delinquency rates, and restructured loans.

According to the article, relying too heavily on "lagging risk indicators can result in inadequate risk identification and lead to decisions based on an incomplete understanding of the risks facing the institution."

Forward-looking indicators, however, proactively assess risks.

Examples of forward-looking risk indicators for retail loans include tracking production and portfolio trends by product, loan-to-value ratio, debt-to-income ratio, lien position, and credit scores.

The article has a table of forward-looking credit metrics for both commercial and retail loans.

To be effective, these reports need to be received on a timely basis, should include trend analysis, and should not rely to heavily on averages.

In conclusion, a forward-looking credit management information system is an important component of a strong governance structure.

Read the article.
Posted by at
Labels: , ,

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)
 

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.