Only months away from the CECL deadline. (Source: Shutterstock)
Many credit unions and other financial institutions are falling behind in preparing for the Q1 2020 CECL compliance deadline, and about one in 15 haven't started preparing at all, according to a recent survey by risk-management technology firm Abrigo.
The Austin, Texas-based company's survey found that only 14% of SEC registrant institutions were running parallel allowances four quarters before the deadline as recommended, and 6% of all respondents had not done anything to prepare for CECL yet. None of the respondents had adopted CECL early or begun incorporating the standard into financial statements, Abrigo said.
"The clock is ticking," Abrigo Senior Director of Advisory Services Regan Camp said. "While many financial institutions are taking the necessary steps to make sure they are prepared for this important change in accounting for credit losses, it's clear that others are falling behind their peers."
The survey showed that many financial institutions had made at least some progress, however. Almost half said they had collected and validated data, for example, and more than a third were testing potential compliance methodologies. Credit unions in particular were more willing or able to gather a larger amount of historical data, and nearly a majority said they planned to gather at least eight years of data, the survey report added.
"This could be due to credit unions typically being more consumer-loan focused, as longer-term consumer loans may require more data to substantiate a meaningful CECL reserve estimate," Abrigo Director of Strategy and Engagement Chris Emery said.
Most credit unions in the survey said they were using vintage loss analysis as their primary calculation method, Abrigo said. The method tends to work best with higher-volume consumer portfolios, it said.
In addition, 44% respondents in this year's survey indicated they were compiling internal data and will work with what they have at implementation. That was a significant increase from last year, when 27% of respondents said they would have to use external data for their modeling needs. In 2017, the number was 31%.
"In an ideal world, we would all have our own internal, historical data with sufficient depth and breadth to support all our analytical and modeling needs," Camp said. "The reality, however, is that most institutions fall short of this ideal and thus, external data is needed to strengthen or augment the picture painted by internal data."
Other notable survey findings included:
- Almost 40% of respondents said they have engaged with a third party to assist with the CECL transition.
- Fewer than 60% of respondents said they were having internal discussions or meeting about the CECL transition.
- Thirty-eight percent were testing potential CECL-compliant technologies, up from 27% last year and 15% in 2017.
- Fewer than a third of the respondents said their boards of directors were involved in CECL preparations.
- Only 43% of respondents said they have sufficient data to run their CECL models, and 27% were confident they will have to incorporate external data.
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