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Risk Factors To Consider Before Investing In CIT Group Inc (NYSE:CIT)

Luis Baughman

Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. As a small-cap bank with a market capitalisation of US$6.84B, CIT Group Inc’s (NYSE:CIT) profit and value are directly affected by economic growth. This is because borrowers’ demand for, and ability to repay, their loans depend on the stability of their salaries and interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting CIT Group’s bottom line. Today I will take you through some bad debt and liability measures to analyse the level of risky assets held by the bank. Looking through a risk-lens is a useful way to assess the attractiveness of CIT Group’s a stock investment. See our latest analysis for CIT Group

NYSE:CIT Historical Debt Apr 24th 18

Does CIT Group Understand Its Own Risks?

The ability for CIT Group to accurately forecast and provision for its bad loans shows it has a strong understanding of the level of risk it is taking on. If the bank provision covers more than 100% of what it actually writes off, then it is considered sensible and relatively accurate in its provisioning of bad debt. Given its high bad loan to bad debt ratio of 195.16% CIT Group has cautiously over-provisioned 95.16% above the appropriate minimum, indicating a safe and prudent forecasting methodology, and its ability to anticipate the factors contributing to its bad loan levels.

How Much Risk Is Too Much?

CIT Group is engaging in risking lending practices if it is over-exposed to bad debt. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. Loans are written off as expenses when they are not repaid, which comes directly out of CIT Group’s profit. A ratio of 0.74% indicates the bank faces relatively low chance of default and exhibits strong bad debt management.

How Big Is CIT Group’s Safety Net?

Handing Money Transparent

CIT Group makes money by lending out its various forms of borrowings. Deposits from customers tend to bear the lowest risk given the relatively stable amount available and interest rate. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. Since CIT Group’s total deposit to total liabilities is within the sensible margin at 70.47% compared to other banks’ level of 50%, it shows a prudent level of the bank’s safer form of borrowing and an appropriate level of risk.

Next Steps:

With positive measures for all three ratios, CIT Group shows a prudent level of managing its risky assets. It has a strong understanding of how much it should provision for lower quality borrowers and has maintained a sensible level of deposits against its liabilities. The company’s judicious lending strategy gives us higher conviction in its ability to manage its operational risks which makes CIT Group a less risky investment. Today, we’ve only explored one aspect of CIT Group. However, as a potential stock investment, there are many more fundamentals you need to consider. I’ve put together three key aspects you should further research:

  1. Future Outlook: What are well-informed industry analysts predicting for CIT’s future growth? Take a look at our free research report of analyst consensus for CIT’s outlook.
  2. Valuation: What is CIT worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether CIT is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.