The current economic climate has seen many financial institutions struggle to add new loans to their books. In addition to a sudden lack of new business, many Canadians have also been struggling to make payments or have been relying on deferred payment options to help keep afloat, resulting in uncharted waters for both credit unions and members alike to navigate through. It comes to no surprise then, that many credit unions are looking for ways to strengthen their operations in risk and delinquency management, as Canada slowly re-opens and prepares for a “back to normal” environment.

It’s been said that delinquency management begins the day you close a loan with a member. Being prepared for all possible outcomes makes working through a delinquency scenario a little easier to manage. Ken Watson, Manager, Credit Risk at Coastal Community Credit Union, believes credit unions should tap into their respective recovery teams and branch teams, as a source of information for both positive and negative economic changes in their market. Ken’s own Credit Recovery team suggests credit unions become aware of trends and/or of sudden major employer shifts as precautionary measures. They also suggest understanding and relying on default management programs available through mortgage insurers.

Watson —who is a facilitator for Cusource’s Business Professional Development Program— also encourages working with members early to get to the root causes of potential delinquency situations. He cites financial mismanagement, marital breakdowns, insolvency, and job losses as common factors that may lead to individuals falling behind on payments. In terms of how the current crisis might be impacting delinquency rates, he mentions having seen “lower delinquency and loss ratios compared to pre-pandemic trends.” However, he also stresses the importance of keeping track of any changes in government programs and anticipating how these changes may impact portfolios. “The “K” curve is a reality; are there actions you can take to assist those on the wrong side of the curve?” he adds.

The importance of working directly with members cannot be overstated. Frank Kennes, a recently retired Executive from Libro Credit Union and current CUIC 345 Business Lending facilitator, also urges credit unions to be proactive and keep on top of escalating scenarios. According to Kennes, having conversations with members is key in helping to avoid worsening situations, and unfavourable outcomes. He recommends narrowing down members that might be struggling and establishing an ongoing conversation with them. “Communicate with these members regularly, be empathetic but also encourage them and help plan for the journey ahead,” adds Kennes. Common behaviours Kennes has identified as signs of potential financial struggles include limited cash availability and maxing out credit cards and lines of credit. As a result of the pandemic, he also warns about the upcoming end of suspensions on debt collections and evictions, and how these removed factors might impact members as the country slowly shifts back to ‘normal’. Inflation is also another impending reality that might present an additional strain on Canadians. “Inflation is usually combatted with higher interest rates, that will mean higher borrowing costs for everyone but it will be particularly difficult for those already stretched to the limit,” adds Kennes.  

Managing delinquencies can feel overwhelming, but with the proper tools and guidance, credit unions can reach the right balance of supporting members, and proactively adjusting the approach to ensure risks are effectively being managed.

CCUA Campus offers various courses focusing on delinquency preparedness and risk management, to help credit unions feel more prepared and better equipped to support members.

Applied Delinquency and Collections utilizes assigned pre-work reading, reflection and participation in directed group discussion to explore fundamental concepts within the collection process. Throughout the eClass the focus remains on treating members with dignity and respect while approaching each unique situation in a professional and confident manner and protecting the best interests of the credit union through risk mitigation.

The Business Professional Development Program helps credit union staff develop the skills and competencies needed to address delinquency. The program helps lenders address this potential scenario by working with the member in advance of any issues.

CUIC 345: Business Lending Cohort focuses on the key concepts related to business loans: from administration to underwriting. Alongside other relevant topics, the cohort covers engaging with ‘Problem Accounts’ and ‘The Loan Investigation Process’ to help mitigate risk on business lending.