Monitoring Whether the Current Economic Uncertainty is Bringing Greater Risk to Your Loan Portfolio
By Tim Harrington
Economic uncertainty makes assessing risk in a credit union’s portfolio that much more difficult. Credit unions can take advantage of existing reports to tease out signals and indicators to help determine what’s happening within their sphere.
Ask an economist if the U.S. economy is going to stay strong or slip into a recession and they will probably just give you a perplexed look. Why? The economic signals are terribly mixed. Traditional indicators of health or recession are occurring simultaneously, and no one knows where things are going from here.
But as a board and management team, there are a variety of internal reports that can give you an idea whether your credit union’s risks are increasing or decreasing. The traditional measures of credit risk, namely delinquency and charge-offs, will not tell you that your risks are changing. These are “lagging indicators.” These tell you of a problem in the past, not that a problem may be starting to happen.