Coming off the height of the Paycheck Protection Program (PPP), banks and credit unions are optimistic heading into the second quarter of 2021.
2020 brought lower year-over-year loan growth for many banks, but with COVID-19 vaccines becoming increasingly available nationwide, the potential for reopening the economy finally seems within reach.
The first half of 2020 saw many banks increasing their provisions and preparing for loan losses related to economic lockdowns. Surprisingly, however, asset quality has remained steady throughout the pandemic and while there are still COVID-related weaknesses to overcome, that certainly is promising for the year to come.
As industries start to open back up and things begin to return to normal, it’s time to start preparing for the future and Current Expected Credit Loss (CECL) reporting.
Now we know what you are thinking; “I don’t want to deal with this, I hope CECL just doesn’t happen!” But the truth is as of December 2020, 150 banks in the USA have already implemented CECL.
This may seem like a marginal number, but those banks represent most of the nation’s banking assets. Overall, sixteen trillion dollars of baking assets, out of twenty-one trillion, have already implemented CECL. The takeaway is: CECL is happening whether we like it or not and it’s time you start preparing too.
Early adoption will benefit you and your financial institution in several ways. The most significant difference CECL will bring is that it incorporates a forward-looking aspect into how you are reserving for future loan losses. With the last year being unpredictable for most, it’s the perfect time to start to understand the methodology and planning for any changes to your reserves or capital. Additionally, CECL has brought many areas of the bank together to provide a wholistic assessment of credit risk for the institution.
Again, we know what you are thinking. “There are different methods to use and lots of paperwork to gather, where do I even start?” Don’t panic, we have an easy-to-use solution designed to help uncomplicated institutions like community banks and credit unions get started.
Our Toolkit not only offers dynamic reporting models but includes strategic and tactical consulting guidance from banking professionals at CLA (CliftonLarsonAllen) to help you through the technical details involved with preparing for CECL.