Risk-Management Review Leads To Other Benefits

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MIAMI-A sketchy economy and recognition it was over-extended on its auto loan portfolio led Bellco Credit Union to reexamine its risk-management strategies.

The result is better compliance with new directives from NCUA, better internal communication and use of data, and a decrease in delinquencies.

Tony Ferris, Bellco's enterprise risk manager, said the $1.9-billion, 192,000-member CU has a new, more comprehensive approach to risk-management that has improved its operations. Ferris' comments came during the Credit Risk & Collections Conference here sponsored by SourceMedia.

Ferris said Bellco found after reviewing its operations that overall its practices were sound, but risk-related measures were often segregated in silos. Moreover, it uncovered within those silos insufficient reporting, measurement and tracking.

Working with the Rochdale Group-where Ferris is also a partner-Bellco created a focus team drawing from multiple departments to respond to NCUA Letter 10-CU-03, released in March 2010, which cited residential real estate loans, member business loans, investments, loan participation and liabilities among its list of potential areas of concentration risk.

The team's analysis found gaps in meeting NCUA's concentration reporting requirements, and determined that Bellco's data warehouse needed enhancements, as did determinations for which departments could best use such data.

"We're better able to target profitability and potential losses in our various structures," Ferris said in a subsequent interview with Credit Union Journal. "As a result of that, we're able to quickly change our underwriting criteria" when needed.

Ability To Move Quickly

While changing underwriting criteria can't eliminate the risk from loans that are already on the books, Ferris said Bellco is now better able "to quickly gear up, from a collections standpoint, should our portfolios start to head south."

In addition, he said, BCU can adjust its entire risk mix to compensate for those portfolios should it see an increase in certain risks, and can avoid or dial back other potential risks.

Another element of Bellco's new strategy, Ferris explained, included using a scale rating risk from 1 (risky) to 6 (safe) for member business and credit card portfolio loans, based on underwriting criteria, product concentration risk reporting, monitoring concentration positions against pre-set limits from the board and incorporating appropriate interest rates into the risk management process.

In terms of real estate, Bellco's risk management also relies on looking beyond the member's FICO score and debt-to-income ratio to factors such as property location and property value, so that loan quality can be assessed over time.

That combination of approaches, said Ferris, has allowed senior management and the CU's board to "have detailed discussions around our strategies and how much risk we want to take on, on a day-to-day basis."

Ferris added that since implementing the more comprehensive risk-management, "we've seen our ability to measure risk comprehensively go up, while we've also seen our delinquencies significantly drop." He acknowledged, however, that the improving economic picture could play a role in the latter.

Ferris said that Bellco's strategy moving forward is to "right-size our loan portfolios that make the most sense for our risk profile, so that we can take advantage of new opportunities in the marketplace more readily and make sure that our membership gets the loans they need and we get a risk tolerance that's acceptable."

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