October 31 – In a recent poll, Sageworks surveyed professionals from banks and credit unions, and the results showed that 42 percent of respondents said institutions should execute preliminary CECL calculations by Q4 of 2017. However, another 24 percent said that institutions should wait to start preliminary calculations after 2017.
Sageworks, a financial information company that provides lending, credit risk and portfolio risk solutions to banks and credit unions, conducted the poll during an Oct. 19 webinar, CECL – Initial & Subsequent Measures of Loss. The poll asked webinar attendees when institutions should execute preliminary CECL calculations. According to responses from these 299 individuals, 13 percent said they should start CECL calculations as of Q4 2016, so one year earlier than the 42 percent of respondents that responded with Q4 2017. Additionally, another 21 percent said institutions should begin calculations as early as Q1 2017.
This poll question was conducted at the end of the webinar, after attendees learned about the different methodologies institutions may use for expected loss calculations and about the importance of data for those calculations. The same poll question was asked at the beginning of the webinar, and the answers changed after attendees learned more about the potential models. The first time the question was asked, 38 percent said institutions should execute CECL calculations after 2017. As the results below share, that number dropped to 24 percent.
“Having good loan-level data that is comparable is what is important,” says Sageworks Senior Risk Management Consultant Neekis Hammond. “Once you go back far in the portfolio, you’ve got to look at how many risk rating scales have happened, how many portfolio shifts have happened, what have the underwriting standards been, and then ask – is that data still relevant to the portfolio?”
Having more people in the 2017 bucket is good, Hammond explains. Portfolios that are three and four years, at least if we are doing a 2017 analysis, will have full reporting capability come implementation in 2020. “I hope those institutions that responded with ‘after 2017’ at least entertain attempting these calculations internally to explore the data limitations that they experience when running the numbers.”