Bits & Banks 路 Episode 22
Bits & Banks - With Jason Pendergist - Episode 22
PD tells you who might default. LGD tells you what happens when they do. But portfolio risk is only fully understood when you connect both to what happens after origination.
In the latest episode of Bits & Banks, we sat down with Jason Pendergist, Chief Credit and Lending Officer at Kitsap Credit Union, to explore how credit unions can take a more holistic approach to credit risk, from PD 脳 LGD and portfolio performance to pricing, decision automation and balance-sheet optimization.
Key Takeaways from the Podcast:
饾棧饾棗 脳 饾棢饾棜饾棗 饾棧饾椏饾椉饾槂饾椂饾棻饾棽饾榾 饾棶 饾棛饾槀饾椆饾椆饾棽饾椏 饾棭饾椂饾棽饾槃 饾椉饾棾 饾棧饾椉饾椏饾榿饾棾饾椉饾椆饾椂饾椉 饾棩饾椂饾榾饾椄
Probability of default tells you how likely a borrower is to default. Loss given default tells you how much you stand to lose when they do. The two need to be considered together. A portfolio with lower PD can still carry higher expected loss if LGD is high. That makes it important to look beyond the initial credit profile and understand the factors driving losses, from LTV and asset quality to income stability, collateral and recoveries.
P饾椉饾椏饾榿饾棾饾椉饾椆饾椂饾椉 饾棤饾椉饾椈饾椂饾榿饾椉饾椏饾椂饾椈饾棿 饾棪饾椀饾椉饾槀饾椆饾棻 饾棛饾棽饾棽饾棻 饾棔饾棶饾棸饾椄 饾棞饾椈饾榿饾椉 饾棖饾椏饾棽饾棻饾椂饾榿 饾棪饾榿饾椏饾棶饾榿饾棽饾棿饾槅
The work doesn't end when a loan is originated. Early performance, straight rolls, 30/60/90-day performance, static loss analysis and cohort profitability provide a retrospective view of portfolio performance, helping institutions identify excessive risk, pricing gaps and missed opportunities, then refine the credit box and strategy.
饾棖饾椏饾棽饾棻饾椂饾榿 饾棪饾榿饾椏饾棶饾榿饾棽饾棿饾槅 饾棥饾棽饾棽饾棻饾榾 饾榿饾椉 饾棛饾椆饾棽饾槄 饾棓饾椏饾椉饾槀饾椈饾棻 饾棩饾椂饾榾饾椄 饾棶饾椈饾棻 饾棧饾椏饾椂饾棸饾椂饾椈饾棿
Once institutions understand the drivers of PD, LGD and profitability, they can determine where to tighten the credit box, open it up, adjust pricing or walk away from the edge. Risk is not inherently bad. The question is whether you understand the risk and are getting paid appropriately for it.
饾棙饾椈饾棻-饾榿饾椉-饾棙饾椈饾棻 饾棗饾棽饾棸饾椂饾榾饾椂饾椉饾椈 饾棓饾槀饾榿饾椉饾椇饾棶饾榿饾椂饾椉饾椈 饾棜饾椉饾棽饾榾 饾棔饾棽饾槅饾椉饾椈饾棻 饾棪饾棸饾椉饾椏饾椂饾椈饾棿 饾棶 饾棤饾椉饾棻饾棽饾椆
Automating a PD score is only one part of the decision. True end-to-end automation also looks at deal structure, pricing, and portfolio performance, while continuously validating how the rules are performing. Jason shared that Kitsap is currently around 80% automated, to reach 90%.
饾棔饾棶饾椆饾棶饾椈饾棸饾棽 饾棪饾椀饾棽饾棽饾榿 饾棦饾椊饾榿饾椂饾椇饾椂饾槆饾棶饾榿饾椂饾椉饾椈 饾棩饾棽饾椌饾槀饾椂饾椏饾棽饾榾 饾棗饾椂饾榾饾棸饾椂饾椊饾椆饾椂饾椈饾棽 饾棓饾椏饾椉饾槀饾椈饾棻 饾棧饾棶饾椏饾榿饾椂饾棸饾椂饾椊饾棶饾榿饾椂饾椉饾椈饾榾
Institutions should lean into the asset classes they do exceptionally well, set concentration limits, and use loan participations to sell excess production and acquire areas where they are underrepresented. Jason also sees tokenization and distributed ledgers as a potential way to make that marketplace faster, cheaper and more efficient.
Thank you, Jason, for joining us and showing us how institutions can build a continuous credit strategy loop: assessing risk at acquisition, monitoring portfolio performance, understanding PD 脳 LGD, refining the credit box, adjusting pricing, and using those learnings to make better decisions over time.
