3 Strategies For Credit Unions To Manage Their Loan Portfolio

Last Updated: 

July 26, 2023

Portfolio risk management is among the prime responsibilities of credit unions. The reason is the highly uncertain economic conditions.

Retail businesses all across the globe are yet to fully recover from the drastic impact of the pandemic. Above it, supply chain issues, inflations, and news regarding recession in the upcoming year are taking a toll on small businesses.

Indeed, businesses are using innovative payment solutions to stay afloat in these challenging times. Though, it is also vital for credit unions to draft risk management strategies and facilitate secure borrowing regardless of the economic conditions. Here’s how:

Key Takeaways on Strategies for Credit Unions to Manage Their Loan Portfolio:

  1. The Importance of Portfolio Risk Management: Credit unions need to ensure robust risk management strategies due to the prevailing uncertain economic conditions. Portfolio risk management is crucial in facilitating secure borrowing.
  2. Evaluating Credit Lending Policies: Credit unions must review their existing credit policies and make necessary modifications. This process involves understanding the borrower's behaviour and potential threats they face.
  3. Embracing Advanced Analytics and Reporting Tools: Tools provided by HPS Worldwide can help credit unions monitor key KPIs and make informed decisions based on detailed payment analytics.
  4. Proactive Portfolio Management: Credit unions should take a proactive approach to portfolio management. This approach requires a thorough understanding of customer portfolios and the potential delinquencies in existing loans. Robust data from internal and external systems are crucial for this process.
  5. Understanding the Cost of Refinancing: With expected increases in interest rates, businesses may seek to refinance their existing loans. Credit unions must be aware of the costs associated with refinancing, such as underwriting and loan documentation. Accurate information from the union's risk rating and internal systems are essential in this regard.
  6. The Role of Technology in Portfolio Management: Lending technologies can give staff a better understanding of portfolio risk and facilitate the creation of a customised pricing structure. These tools make it easier to compute the expected return and price of each refinanced loan.
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Evaluate Your Credit Lending Policies

There’s no denying that nearly every industry experienced an excessive impact on its growth due to poor economic conditions. And the latest interest rate hikes are further striking the affecting businesses. For instance, the construction industry will likely face a downturn due to less demand for residential real estate. Similarly, other industries are reluctant to accept the high-interest rates.

Therefore, you must evaluate your existing credit policies and modify them appropriately. It means learning about the borrower’s behaviour and understanding business needs and potential threats it is exposed to.

In order to do this, professionals at HPS Worldwide’s solution recommend implementing advanced payment analytics and reporting tools. These will aid in emphasising the key KPIs and making well-versed decisions timely.

Modernise Your Banking Processes

It's important not to overlook the fundamental aspects of financial management amid evaluating credit policies. One of these is maintaining a well-managed checking account, a tool often underappreciated but essential for effective money management. As the cornerstone of everyday banking, it plays a crucial role in monitoring inflow and outflow of funds, facilitating transactions, and ensuring seamless operation of your business. Just as advanced payment analytics can shed light on your company's financial health, a well-structured checking account can provide a clear, real-time picture of your liquidity status. Modernising banking processes, therefore, is as important as evaluating your lending policies.

Prioritise Proactive Portfolio Management

Credit unions must aim for proactive portfolio management, which necessitates focusing on trends and behaviours to comprehend customer portfolios. It is vital to get ahead of any potential delinquencies for existing loans.

In order to attain this goal, robust data are required. It includes data from internal and external systems, including financial statement data, loan, deposit, and collateral data. Fortunately, deploying a credit management payment solution will come in handy here. These systems are available 24*7, ensuring efficient management of loan portfolios in line with the modified policies.

The appropriate lending technology will also give your staff a thorough understanding of portfolio risk.

Be Vigilant Of The Cost Of Refinancing

According to reports, the Federal Reserve intends to increase interest rates in the new year. So, if a business has an existing loan, especially one with a variable interest rate, it might seek to refinance. However, it shouldn’t be done for free.

Costs associated with refinancing include the time and money spent on underwriting and loan documentation, among other steps. Therefore, credit unions must consider the same.

For this, your team requires appropriate information from the credit union’s risk rating and internal and core systems. You can further use the latest lending technologies to create a customised pricing structure. These types of tools make it simple to compute the expected return and price of each refinanced loan based on data. All this while keeping solid business ties.

To Sum It All Up

These are some ways in which credit unions can deal with ever-changing economic conditions. Moreover, it will facilitate the organisation’s working by ensuring improved efficiency in the payment solution. Ultimately, the higher the risk unions could manage, the better will be the retailer’s borrowing experience.

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