Introduced by the Financial Accounting Standards Board (FASB) in June 2016, the Current Expected Credit Loss (CECL) model changes 40 years of standards related to accounting for credit risk changes. The impact will vary, but every financial institution is required to comply with the standards.
Better Lending Starts Now
It may seem like there is plenty of time to implement CECL, but there are benefits to farm credit associations that execute ahead of the deadline. Shifting to a forward-looking model for estimating the allowance for loan and lease losses (ALLL) will help associations better evaluate loan applications and more accurately price the loans that they offer to their communities. The data collected will provide the information needed to better evaluate the risks associated with borrowing for different types of critical resources, from farm equipment to rural housing.
Additional Concerns for Farm Credit
On top of compliance with GAAP for purposes of their financial statement audits, farm credit associations also need to address any consistency issues raised by their district bank. The associations may have some latitude in evaluating and choosing a CECL model and software solution, but the district might require certain features in order to get consistent information from all its member institutions. Your association will need a system that allows flexibility in its methodologies, and it may need to consider more comprehensive data collection techniques to support any methodology changes that might be necessitated by the district bank. You’ll also need a resource who is familiar with a wide variety of models to help modify your system to meet any additional requirements.
Maximize the Return on Your CECL Investment
To maximize the return on the significant investment that CECL implementation requires, your association needs to do more with the solutions than the minimum needed for CECL compliance. The success of the system you implement will be measured by the improvements in your association’s capability to control pricing, perform credit analysis and conduct strategic planning.
Take CECL from compliance challenge to opportunity. Wherever you are in the process, HORNE will take you forward.