Zoot Uncovers Troubling Data Regarding Credit Risk Management

BOZEMAN, Mont. — A recent poll of financial industry executives by Zoot, a provider of advanced instant credit decisioning and loan origination solutions, revealed a lag in credit risk policy development processes.

Results from the poll show that financial institutions are facing significant challenges, because the length of time required to develop and implement new credit risk policy is ineffective in a rapidly changing economic climate.  

According to the poll, 93 percent of participants identified it takes at least nine months to develop, test and deploy a credit risk policy concept. The majority (64 percent) reported this process takes their institution 12 to 18 months. In today’s market, rapidly changing conditions cause new policies to become outdated quickly (sometimes even before they can be implemented).

Improving lending practices will require better data, sharing data across lines of business, reengineering tools to build better risk management policies, improving business processes, and developing and implementing new scoring models more quickly.

“Zoot’s poll showed that about half of the respondents share risk management resources across origination, servicing and collections, which is encouraging,” said Bobbie Britting, research director of consumer lending at TowerGroup. “Simply restricting credit is not a sustainable practice and to emerge from this crisis, preventing loss on the back end begins with knowing what to look for in originations. Paying careful attention to changes across the consumer credit lifecycle and intervening in a timely manner will help minimize losses and possibly prevent accounts from becoming bad.”

Zoot’s latest business solution, Credit Risk Lab, provides lenders the ability to significantly shorten the cycle of making changes to attributes and scorecards to determine what is most predictive in the current environment.

“The poll revealed that the majority of attendees are only reviewing credit policy yearly, if that. This ensures that they won’t be able to adapt to changing conditions and will continue to lose money due to outdated credit risk models,” said Eric Lindeen, director of marketing at Zoot. “When the market is constantly changing and new regulatory requirements are looming, financial institutions need to be able to respond quickly and implement new strategies that will be effective.”       

For more information on a new approach to credit risk policy development, visit Zoot’s on-demand presentation “Take Back Control of Credit Risk Management.”