High levels of delinquency have threatened the health of loan portfolios at financial institutions nationwide, underscoring the need for sophisticated risk management tools and systems that allow bank professionals the ability to evaluate and mitigate risk in client populations. At the same time, a recent report shows more consumers have knuckled down to focus on repairing their credit situations, bringing an overall decline in default rates for a variety of different loan types.
Standard and Poor's and Experian released the most recent Consumer Credit Default Indices report in mid-October, reporting that four of the five loan types evaluated enjoyed their lowest default rates since the most recent economic recession. Defaults increased only in the auto loan sector – from 1.09 percent to 1.11 percent month-over-month.
"This is still a decent number, as the historic low for such loans was 1.01 percent posted just two months ago in July," S&P executive David Blitzer said in a press release, describing the auto loan default rate.
Bank card defaults were at 3.7 percent in September, while rates for first and second mortgages dropped to 1.36 percent and 0.64 percent, respectively. The report's composite index was down to 1.46 percent last month from 1.5 percent in August.
Leveraging risk management software to further decrease defaults
For many bank professionals, it's encouraging news that consumers recognize the need to eliminate existing debt, though financial institutions would still benefit from a proactive approach to risk mitigation. That is where an investment in leading custom credit management software could benefit many banks.
This technology can offer lenders insight into their existing credit portfolio, helping these professionals evaluate current customers to determine where default risks may lie. Consequently, these banks can take proactive steps to reach out to distressed borrowers to arrange precautionary measures, thus mitigating substantial loss and improving customer service.