Configuring risk ratings

From the Risk Ratings sub-tab of the Credit Risk tab of the Profitability Configuration page in RPPS, you can assign FICO ranges, risk ratings, and other ratings to your accounts to help you provision for potential loan loss.

You can configure the following types of risk ratings:

  • FICO - In the left panel of this page, you can enter, modify, or delete FICO score ranges. In the system, you can use FICO scores for accounts where they have not assigned a risk rating to calculate a loan loss provision expense.  Because a FICO score can be any value between 250 and 900, institutions typically set ranges when evaluating a FICO score.
  • Risk Rating - In the center panel of this page, you can enter, modify, or delete risk ratings for commercial loans. Although risk ratings are established during initial RPPS setup and rarely changed afterward, your institution may decide to revise its risk rate structure. For this reason, you can use the Risk Rating column to add new risk ratings.
  • Other - Optionally, you can use the Other Rating panel to create new ratings for greater flexibility.

Adding or modifying a FICO range

To add or modify a FICO range:

  1. In the FICO Range panel on the far-left of the page, click + Add New FICO Range .
  2. In the FICO Range column, type a name value in the field, typically the range, but your input in this field does not affect the actual range.

  3. In the Range column, type the desired maximum value for your range. The system automatically defines the minimum value of new ranges based on the maximum values you entered.

    NOTE: You cannot change this range without changing the maximum value set for the previous FICO range.

  4. At the top-right corner of the page, click Save .

NOTE: Your institution can set up as many FICO score ranges as desired, but a FICO score may not be in more than one range.

The ranges for FICO scores are not time-sensitive and do not need to be associated with an effective date. To calculate a provision expense for each loan for each month, the system uses the FICO Ranges in combination with a provision allocation rate by product.

Adding or modifying a risk rating

To calculate a provision expense for each loan for each month, the system uses the risk ratings in combination with a provision allocation rate. Risk ratings used by your institution are assigned to loan customer accounts to reflect the current risk of a particular loan defaulting.

NOTE: Risk rates are set by your institution. Typically, a bank assign commercial loans a numeric value between 1 and 9, with 3 or 4 being normal and the number increasing as the risk increases. A risk rating of 9 could mean a total default.  When originating a new loan, many institutions have risk standards where they will not fund a loan with higher risk without special approvals and increased pricing considerations.

TIP: Although ratings a commonly single-digit numbers, your institution may have an expanded structure with a wider range of numbers or alphabetical characters. The system only uses one set of risk rates for all commercial loans.

To add or modify a risk rating:

  1. If adding a new risk rating, click + Add New Risk Rating.
  2. In the Risk Rating column, type a name in the field.
  3. In the Value column, type a value in the field that you wish to associate with the risk rating. Values are usually 1 through 9, but yours may vary.
  4. At the top-right corner of the page, click Save .

NOTE: Names and values for your risk ratings must be unique.

The values for risk ratings are not time-sensitive and do not need to be associated with an effective date.

Adding or modifying other ratings

To add or modify a rating other than a FICO or risk rating:

  1. Click Add New Risk Rating.
  2. In the Other Rating column, type a value in the field to name the risk rating.
  3. In the Value column, type a corresponding value in the field .
  4. At the top-right corner of the page, click Save .

NOTE: Names and values for your risk ratings must be unique.

Deleting a rating

To delete a rating:

  1. Click the box in the column with a trash can icon.
  2. In the top-right corner of the page, click Save .