Comply with all NCUA regulations related to risk based pricing.
Risk Based Lending consists of two parts:
- Underwriting: Do you want to make this loan?
- Pricing: What rate must I charge to account for the risk?
According to NCUA Guidance Letter - 174, "Risk-based lending allows credit union management to assess the risks involved in different types of loan products and price these products based upon the inherent risk associated with individual borrowers. The end result is a more diversified loan portfolio mixing lower-yielding, lower risk loans with higher-yielding, but riskier loans."
Expand your outreach to the underserved with rates that level the risk playing field.
The NCUA Guidance Letter continues to lay a foundation for our Risk Based Pricing Tool. It states that "prior to beginning a risk-based lending program, it is important that the credit union board determine the parameters for the riskier loans based on the credit union's financial condition, business plan, lending and collection history, and asset liability management (ALM) program.
Credit unions should engage in risk-based lending, not as a means of re-pricing existing balance sheets, but as a tool to reach out to the under-served and take a risk that might otherwise be avoided.
Enhance member loyalty and longevity by reach out to more of your membership.
At TCT we define risk, in relation to the loan portfolio, as the likelihood that money that has been expended or extended by the credit union will not return.
- Money expended includes cost of funds, loan operations and collections.
- Money extended includes charge-offs of principle balances.
TCT Risk Based Pricing assures that your credit union has an accurate measurement of costs, applies costs accurately to loan volume and sets rates that will cover all costs and feed equity. It is a vital component of a vibrant ALM management plan.