NCUA: 2012 Looks Better, But Use Care in Managing Risk (Misc News: January 5, 2012)
In a letter to credit unions, the NCUA said 2012 is shaping up to be a profitable year, but the federal regulator also warned that the industry still faces major risks in their loan portfolios.
The letter, 12-CU-01, said that recent trends show credit unions are moving to riskier loans as new car loans continue to decline. The riskier loans include more unsecured loans and non-federally insured private student loans.
In response, the NCUA said it would step up monitoring and supervision.
“In order to ensure that the positive trends continue in 2012, NCUA plans to closely monitor and supervise emerging risks which are evident in several lending and investment trends,” NCUA board Chair Debbie Matz said in the letter.
“Of particular concern: Growth in low-rate first mortgages continues to far exceed growth in overall loans,” NCUA said. “Credit unions holding high concentrations of long-term fixed-rate loans will be subject to negative margins when interest rates rise and short-term funding costs exceed income from fixed-rate mortgages.”
The NCUA also recommended that credit unions with high exposure to interest rate risks should "proactively re-structure their balance sheets, sell off excessive concentrations of long-term loans, and re-price share products before rates begin to rise."
Delinquency and charge-off ratios stabilized through the third quarter of 2011, but the percentage of loans with delinquencies greater than 12 months increased, indicating that charge-offs may spike in the near future, the letter said.
NCUA said examiners will focus on credit unions with elevated levels of credit, interest rate, liquidity and concentration risks.