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Zoot Enterprises, a Bozeman, Mont.-based provider of instant credit-decisioning and loan-origination solutions, polled financial industry executives regarding their credit risk policy development processes, and the results revealed troubling data about the current development cycle of most financial institutions.
According to poll results, financial institutions are facing significant challenges because the length of time required to develop and implement new credit risk policy renders them ineffective in a rapidly changing economic climate.
Some 93% of participants said it takes at least nine months to develop, test and deploy a credit risk policy concept. The majority, 64%, reported this process takes their institution 12 to 18 months. In today's market, rapidly changing conditions cause new policies to become outdated quickly – sometimes even before they can be implemented. Improving lending practices will require better data, sharing data across lines of business, reengineering tools to build better risk management policies, improving business processes, and developing and implementing new scoring models more quickly.
"Zoot's poll showed that about half of the respondents share risk management resources across origination, servicing and collections, which is encouraging," Bobbie Britting, research director of consumer lending at TowerGroup, said in a news release.
"Simply restricting credit is not a sustainable practice and to emerge from this crisis, preventing loss on the back end begins with knowing what to look for in originations," Britting said. "Paying careful attention to changes across the consumer credit lifecycle and intervening in a timely manner will help minimize losses and possibly prevent accounts from becoming bad."
Zoot recently unveiled its latest business solution, Zoot's Credit Risk Lab, which provides lenders the ability to significantly shorten the cycle of making changes to attributes and scorecards to determine what is most predictive in the current environment.
"The poll revealed that the majority of attendees are only reviewing credit policy yearly, if that. This ensures that they won't be able to adapt to changing conditions and will continue to lose money due to outdated credit risk models," said Eric Lindeen, Zoot's director of marketing. "When the market is constantly changing and new regulatory requirements are looming, financial institutions need to be able to respond quickly and implement new strategies that will be effective."
