Updating it systems plan credit union
Ratings are then maintained through a diligent loan administration process to ensure ongoing risk monitoring.(See Commercial Loan Administration.) A credit risk rating system is a formal process that a credit union uses to identify and assign a credit risk rating to each commercial loan in a federally insured credit union’s portfolio.It allows management to assess credit quality, identify problem loans, monitor risk performance, and manage risk levels.It should also guide loan pricing to ensure loans are appropriately priced for the risks.You’ll need a draft business plan before you can apply for authorisation to become a credit union.The board is responsible for writing and updating the plan.
An example of a quantitative factor is a financial measurement such as debt service coverage, debt-to-worth, or liquidity.Most ratings systems have between six and ten ratings.Larger, more complex credit unions will have a more extensive rating system in comparison to smaller, less complex credit unions. Ratings of individual loans should change when the level of risk changes.Dual rating systems have emerged because a single rating may not adequately support all the functions that require a credit risk rating.Obligor ratings often support deal structuring and loan administration, while facility ratings support ALLL and capital estimates (which affect loan pricing and portfolio management decisions).
Whichever approach is used, a credit union’s risk rating system should accurately convey the risks the credit union undertakes and should reinforce sound risk management.