Decision Trees: How Can They Strengthen Your Loan Portfolio?
Do you want to stand out in the forest of competitors? At TCT Risk Solution’s webinar, we will teach you how to utilize decisioning trees to maximize your profits and diversify your portfolio.
Too often, credit union managers think they are taking the “high road” when they limit their loan approvals to high credit-score borrowers. However, balancing your loan portfolio to include less-than-prime borrowers creates a sustainable growth model and diversification.
NCUA supports risk-based lending and risk-based pricing
Risk based lending for the purpose of serving a wider member base is not a new concept. NCUA Chairman of the Board, Norman E. D’Amours stated: “Credit unions should engage in risk-based lending, not as a means of re-pricing existing balance sheets, but as a tool to reach out to the under-served and take a risk that might otherwise be avoided.”
There are advantageous reasons to balance loan portfolios with a broad spectrum of loan types and borrowers. These include:
- Loan portfolios with limited types expose a credit union to unsafe concentration risk.
- The “A+ and A” lending market place is crowded. Pricing wars make profitability difficult.
- Credit unions, particularly small ones, struggle to increase their portfolios and profitability.
- Less-than-prime consumers can benefit from more lending options.
- Less-than-prime borrowers tend to be more loyal and use additional services comparative to prime borrowers.
- When priced and managed correctly, providing less-than-prime loans to consumers can increase ROAA by up to 30 BP.
- Prime borrowers enjoy pricing more in line with their low risk because they are no longer subsidizing higher risk borrowers
Credit unions that loan to less-than-prime consumers using Risk Based Loan Pricing tools and decisioning trees experience member increases, loan portfolios increases, and profitability.
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The Loan Decisioning Tree
11 am PT • 12 pm MT • 1 pm CT • 2 pm ET
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