The CUNA Lending Council has produced a paper that outlines a process for evaluating credit union concentration risk.
Authored by Bill Vogeny, senior executive vice president of lending and finance, Ent CU, the 11-page “financial flash” provides additional guidance on policy and tracking metrics, particularly as credit unions’ lending strategies evolve with the lending landscape.
Part of a solid concentration risk policy can and should include systematic monitoring of a variety of external metrics. This monitoring can help not only identify upcoming risk in the portfolio, it can provide a basis for developing risk evaluation scenarios. The following are some metrics the Colorado Springs, Colo.-based credit union recently identified when updating its concentration risk policy for 2016-2021:
There is no right or wrong way to measure risk and develop concentration limits; the key is to understand risk exposure and how the portfolio is unique compared with other credit unions, Vogeny wrote.
CUNA Lending Council members are eligible to receive complimentary copies of this and more than 300 other white papers and Financial Flashes.