NCUA debuts new tool for calculating current expected credit loss

The National Credit Union Administration has released a new Microsoft Excel-based financial resource for primarily helping credit unions with $100 million of assets or fewer comply with reporting benchmarks imposed by the Financial Accounting Standards Board for current expected credit loss, or CECL.

The NCUA said the Simplified CECL Tool, which requires a credit union to input its charter number, total assets and loan portfolio balances, can help institutions calculate the allowance for credit loss while additionally permitting qualitative tweaks based off of conditions both current and forecast that are supported by evidence. 

"The Simplified CECL Tool gives small credit unions a valuable resource to help them implement CECL without having to hire an econometrician or to use complicated models. … With an uncertain economic picture, this tool provides relief for smaller credit unions, so they can focus on serving their members and communities," Todd Harper, chairman of the NCUA, said in a press release Wednesday.

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As opposed to the incurred-loss standard, where credit erosion must first become apparent in order for lenders to make the addition to their loan-loss allowances, CECL requires such projections be made in advance.

James Akin, regulatory affairs counsel for the National Association of Federally-Insured Credit Unions, explained that the credit unions with minimal economies of scale unable to develop accounting software on their own can benefit from the versatility and low cost of the NCUA's instrument.

"This Simplified CECL tool from the NCUA represents a real benefit to smaller credit unions, that anyone can basically. … Populate [it] with historical economic data and it will allow them to get an estimate of their institution's credit losses," Akin said. "This is just a tool for smaller credit unions to be able to implement CECL without expending a tremendous amount of cost, and I know that there are a lot of folks in the industry who welcome it."

The agency will continually roll out updates for the tool and allow credit unions to test its efficiency using third-quarter and fourth-quarter data. The new accounting standards are expected to go into effect for most credit unions at the beginning of 2023.