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Response to increasing delinquencies/charge-offs: Loosen credit policies?????

For some lenders, the delinquency/charge-off figures continue to rise as banks and credit unions work through their challenging loans. Here are two ideas for improving the charge-off ratio:

Loosen credit policies and guidelines

At the CUNA Lending Council Conference last week, CLOs and CEOs pondered this idea. Here is what they came up with.

Carefully review which segments of your loan portfolio are performing well. Consider whether you might be comfortable loosening the loan guidelines for those segments. If you can make more performing loans, that brings the ratio of delinquencies/charge-offs to performing loans back down.

Great idea!

Catch problem loans before they are delinquent

Why wait for them to miss payments. As an example, running credit checks on performing loans uncovers borrowers whose credit scores are slipping, even though they still are paying as agreed. Reaching out with alternatives to this group can result in a borrower continuing to pay as agreed or perhaps a loan modification before they go delinquent.

It is interesting that in some cases, the A and B borrowers are more likely to pay right up until the time that they hand you the keys because they have never been delinquent before. They may not realize there are alternatives.

What are you doing to manage the delinquency/charge-off ratio?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.