This is not an all-inclusive list. Rather, it provides examples to help credit unions incorporate the qualitative factors (Q-factors).
| Qualitative Adjustments | Examples |
|---|---|
Qualitative Adjustments (Q-factors from 2020 IPS and ASC 326-20-55-4) |
Examples Q-factors may be negative or positive to increase or decrease overall Allowance for Credit Losses |
Qualitative Adjustments Trends in nature and volume of financial assets |
Examples A credit union begins indirect lending and experiences 35 percent growth in auto lending in a 3-month timeframe. |
Qualitative Adjustments Existence and effect of any concentrations of credit |
Examples A credit union has 95 percent loan to share ratio, 80 percent of loans are concentrated in real estate. |
Qualitative Adjustments Volume and severity of past due financial assets |
Examples A credit union has experienced a severe increase in past due loans with an expectation of 40 percent requiring charge-off. |
Qualitative Adjustments Changes in value of underlying collateral |
Examples 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. |
Qualitative Adjustments Changes in lending strategies, policies, and procedures |
Examples A credit union loosens underwriting standards to provide more loans to borrowers with substandard credit. |
Qualitative Adjustments Quality of credit review function |
Examples A credit union’s quality control function reviews adherence to current lending policies. |
Qualitative Adjustments Experience, ability, and depth of lending staff |
Examples Three out of four of a credit union’s loan staff have over 10 years of experience. |
Qualitative Adjustments External factors—competition, technology, natural disasters |
Examples New bank in town appears to offer similar products. |
Qualitative Adjustments Changes to the general market conditions of local area |
Examples Local unemployment rate is higher than national unemployment rate. |
Qualitative Adjustments Changes to local business conditions |
Examples A credit union primarily serves a select employee group and the sponsor recently declared bankruptcy. |