Top Risks for Early 2021 – An Interview with Chief Risk Officer Parrish Little (Part 1)

Here at 360factors our aim is to deliver predictive risk and compliance intelligence through modern technologies. We keep in touch with industry experts to gain deeper insights about how banks, credit unions and financial services organizations are managing risk right now, what their challenges are, and how those challenges can potentially be solved.

Parrish Little (CRO – HomeTrust Bank)

Megan Ward, Vice President of Marketing at 360factors, interviewed Parrish Little, Chief Risk Officer at HomeTrust Bank. Parrish Little is a risk leader with three decades of experience in the audit, quality, and risk management domain. Just as importantly, he is a lifelong Clemson Tiger fan.

Megan

Looking towards Q1 of 2021, what are the top risks and/or risk categories that your team is especially focused on?

Parrish

A top category for us and most banks is the uncertainty with credit risk and the potential for borrowers to continue to experience increased stress on revenue generation as a result of the pandemic impacts. The inability of borrowers to repay their debt obligations is a significant potential risk that we are monitoring and evaluating very closely. Most banks would agree that it is important to stay in close contact with borrowers and offer assistance where we can during these difficult times.

Another area of risk, which has accelerated during the pandemic and will likely continue, is the ability to provide the technology capabilities that can meet changing customer behaviors and expectations. How consumers and businesses experience banking and the ways in which they interact with their financial institutions is vital to account growth and retention. While we can offer innovative solutions to our customers, we must continue to evaluate new opportunities and capabilities that they see are valuable. Those solutions must also be easy to use and provide a high level of security. Our ability to provide the level of service customers expect is a risk that we feel is important to focus on right now because of the accelerated customer expectations for digital banking.

I would say a third broad area of risk is the overall market and external environment. Many of these risks are out of our direct control, such as the impacts of low-interest rates and the resulting compressed net interest margin, which is something many institutions are struggling with today. However, Risk Managers need to stay in touch with external changes and trends that could impact your institution. Margin compression has a significant impact on a bank’s income and overall ability to meet strategic goals. Responding to these uncontrollable risks requires creative thinking and ideas to minimize the impacts.

Megan

Going back to technology, I think that is a really interesting risk. Are you also looking at cybersecurity risk?

Parish

Yes, cybersecurity risk is always on our top list of potential risks at HomeTrust as it is at most every institution. During the pandemic, we have seen quite a bit of activity in terms of consumers being targeted with various types of scams. The fraudsters are coming after their personal information to use in a number of ways to gain access to their funds; the number of consumers we have seen impacted from this risk has significantly increased and will continue as online consumer activity remains high. For those customers that are impacted, we help them work through those situations, but we also provide communications to our customers with advice on protecting their identity and accounts from fraud attempts. As it relates to our own internal monitoring routines, we periodically evaluate our security systems and protocols to minimize the risk of successful attacks on our network. No institution can be totally immune to that risk, and so it is always on our list of top risks.

An area that we continuously focus on with cybersecurity and security in general, which is the case for all banks is employee education and awareness. Frequent education, training, and testing is extremely important to minimize the risk of a successful attempt by a fraudster to gain access to your bank’s network. We do internal testing to see how our employees will respond to attacks, and that gives us an indication on whether they are retaining what we train them on or whether we need to do something different so that employees understand the risk and how to avoid falling victim to an attack. Each employee at a company is a potential point of entry for fraudsters, so it is a significant risk for any institution.

Megan

Following up with credit risk, we noticed that during the stimulus and PPP rounds over the past summer, automobile loans and mortgages were not negatively impacted very much.

Do you think that the credit risk will potentially be affected by another round of stimulus or dependent on that?

Parrish

The stimulus packages from the government and the Paycheck Protection Program have certainly helped both consumers and businesses. Obviously, small businesses and individuals need support to hopefully get through these challenging times until things can start to open back up and they can generate more sustained levels of income. However, several questions remain unanswered. How long will the negative impacts from the pandemic last? If we do receive another round of stimulus, how significant will that be and will some areas be carved out? How significant will the impacts be with more restrictions placed on consumers and businesses in attempts to minimize further spread?

As with many of us, we are closely monitoring progress on a vaccine and the timing of distribution. We are hopeful for a quick and safe solution that will eventually put an end to these open questions and the uncertainty.

We do talk with the Federal Reserve regularly about the impacts of what’s happening within our district and with our own consumers and businesses. While some businesses have been devastated, many have been able to at least remain open and adapt to a new norm under the current circumstances. But the question is, how long can they last under a set of restrictions that keeps them from making what they expect to keep their employees and maintain operations?

Many are hopeful for the additional stimulus that would help them sustain operations at least until a successful vaccine is deployed. For certain higher-risk industries, such as the service industry (and more specifically hotels), some have performed fairly well in certain markets, while in others they have not. Much of their success depends on their client base and whether reliance on travel is primarily corporate or leisure. As you know, corporate travel is almost non-existent these days.

Megan

Interesting point. And hopefully that stimulus and the timing is enough to really get people through the situation.

360factors would like to thank Parrish Little for sitting down with us to provide as an industry risk leader. Stay tuned for Part 2.