Qualitative Adjustments

This is not an all-inclusive list. Rather, it provides examples to help credit unions incorporate the qualitative factors (commonly referred to as Q-factors). Qualitative factors may be negative or positive to increase or decrease overall ACL.

 

Qualitative Adjustments (2020IPS ACL and ASC 326-20-55-4)	Examples
Trends in nature and volume of financial assets	A credit union begins indirect lending and experiences 35 percent growth in auto lending in a 3-month timeframe
Existence and effect of any concentrations of credit	A credit union has 95 percent loan to share ratio, 80 percent of loans are concentrated in real estate
Existence and effect of any concentrations of credit	A credit union has experienced a severe increase in past due loans with an expectation of 40 percent requiring charge-off
Changes in value of underlying collateral	Consider this qualitative factor if the loan is not collateral-dependent and a credit union expects repayment to come from sale of collateral less cost to sell
Changes in lending strategies, policies, and procedures	A credit union loosens underwriting standards to provide more loans to borrowers with substandard credit
Quality of credit review function	A credit union’s quality control function reviews adherence to current lending policies
Experience, ability, and depth of lending staff	Three out of four of a credit union’s loan staff have over 10 years of experience
External factors—competition, technology, natural disasters	New bank in town appears to offer similar products
Changes to the general market conditions of local area	Local unemployment rate is higher than national unemployment rate
Changes to local business conditions	A credit union primarily serves a select employee group and the sponsor recently declared bankruptcy

Last updated on June 05, 2023