FICO® CECL Impairment Management

How will CECL impact your portfolio? Ask the right questions now for higher business performance after implementation

Overview

The 2019-2021 timeframe for implementation of the new US GAAP current expected credit loss (CECL) impairment model is just ahead. The questions you ask now and steps you take early on will have a material effect not only on the profitability of your portfolios, but on your ROE and ability to maneuver effectively in lending markets that will certainly become even more competitive by the implementation deadlines. 

FICO can not only accelerate and simplify your path to CECL compliance, we can help you figure out the impact on your business and transition your credit lifecycle strategies to deliver the results you want under the new conditions. We have extensive experience doing just that for financial institutions around the world implementing IFRS 9—and much of what we’ve learned is applicable to CECL as well. Work with us early, and by the compliance date you’ll not only be making very precise lifetime loss estimates—thereby avoiding excessive frontloading of capital—you’ll also be a stronger competitor. 

 

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Solution Sheet

 

The Challenge

CECL compliance is prompting changes that, while challenging, will ultimately lead to better decisions in both risk and capital management. These include:

Bringing together lifecycle data. Using cloud services or other data sharing frameworks, you can overcome silo’d information for a clearer view of the full risk you’re taking on when you book a new account.

Interpreting principles and defending assumptions. How will you define “loss” under CECL? How will you go about calculating “lifetime loss” for credit products that have no defined lifetime? What will your approach be for factoring in the uncertainties of forward-looking economic scenarios? Whatever decisions you make, you’ll need to be able to defend them to senior management, auditors, regulators and shareholders.

Creating granular population segments. How granular can you go in differentiating between relative risk levels in your portfolio populations? Analyzing detailed data for more risk separation will enable more precise loss estimates. Precision is how you keep as much capital as possible available for other business purposes—like launching new digital services that grow your business.

Building and explaining lifetime loss estimation models. How you define “loss” and “lifetime” will affect the types of component models that go into an Expected Loss (EL) modeling framework that’s right for your business. The way your models are constructed and engineered can minimize volatility in month to month loss estimates while improving their explainability. 

Performing rapid re-estimation and reporting. Under CECL, you’ll be re-estimating lifetime losses for all of your accounts at every financial reporting period. A high-performance software platform—rapidly performing massive calculations from diverse data and multiple models—can make outputting the required reports push-button easy. 

Solution Architecture

FICO® CECL Impairment Management Solution

FICO offers a comprehensive IFRS 9 Impairment Solution, including modeling, software and consulting. The solution includes a complete data processing, calculation, decisioning, reporting and governance engine. This industrial-strength platform has proven performance in data-intensive, massively scaled projects.

With more than 60 years of analytic innovation and domain experience in financial services, FICO can also help you ask the right questions and take the right steps early on so that your transition to CECL goes smoothly, with no unnecessary impacts on your portfolios. We can also help you take proactive measures ahead of CECL to adjust credit strategies, marketing campaigns and collection practices so that they perform well after implementation.

Products

FICO® Analytic Consulting

Product overview

FICO® Analytic Consulting helps you attain the best predictive models for your business needs—whether you’re new to scoring or have an experienced in-house analytic team.  FICO Analytic Consulting's predictive models provide significant benefits used on their own or as an integral part of FICO’s decision management solutions.  Use empirically derived custom models tailored specifically to proprietary product portfolios and customer bases, as well as pooled-data and expert (knowledge-based) models to reduce the time, expense and data demands of custom development.

FICO® Blaze Advisor® Decision Rules Management System

FICO® Optimization Modeler

Product overview

FICO® Analytic Consulting helps you attain the best predictive models for your business needs—whether you’re new to scoring or have an experienced in-house analytic team.  FICO Analytic Consulting's predictive models provide significant benefits used on their own or as an integral part of FICO’s decision management solutions.  Use empirically derived custom models tailored specifically to proprietary product portfolios and customer bases, as well as pooled-data and expert (knowledge-based) models to reduce the time, expense and data demands of custom development.

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