Portfolio Management - "On the Firing Line"

Bill Bromback – Chief Research Officer

July 2, 2020

The coronavirus pandemic has already created tremendous stress for the health and financial stability of U.S. households and individuals. We’ve seen more COVID-19 related deaths in the U.S. over the last few months than during the Vietnam War, Korean War, and World War I. Unemployment claims have reached a staggering 46 million as of June 20 (as reported by the U.S. Labor Department). Now, unfortunately, as many states have moved into a “green” phase allowing for social and business activities to resume, there is another surge in the number of new coronavirus cases occurring in many states.

These market conditions send shivers down the spine of all finance institutions. Clearly there is a heightened risk for loan delinquency and defaults during this period. As a result, most banks and credit unions are increasing loan loss reserves, as well as making a full court press to increase vigilance on their loan portfolio.

One recommended action is to implement a credit score migration monitoring initiative to help identify potential portfolio risk. Not only is it important to have an aggregate view of credit score migration for your entire portfolio, but also at a loan product level, right down to the specific member. Armed with this information, a credit union can:

Beyond risk management, monitoring portfolio credit score migration can be of great value in helping generate incremental lending volume opportunities and increased customer satisfaction.

For example, as a group of members’ credit scores improves, it presents the opportunity to review their current credit line and generate an offer to increase it, or perhaps offer them a better rate on the existing loan in order to retain them, or lastly, present them with other lending products offered by the credit union.

In today’s market more than ever, maintaining a handle on a member’s credit score has a significant impact, positively and negatively, on the ability of the credit union to meet its financial goals.