ALEXANDRIA, Va. – NCUA told credit unions the industry is heading for one of its most profitable years ever but still faces major risk as credit unions shift toward new activities.
In a new letter to credit unions, NCUA said recent lending trends reveal several areas of concern. Among them are a move to riskier loans as new auto loans continue their decline, the growth of unsecured loans and of non-federally-insured private student loans.
NCUA noted that the industry’s net income for the first three quarters of the year exceeded the net for all of 2010, even after the $2 billion NCUA charge for the corporate credit union assessment. “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,” said the Letter to CUs, Supervisory Focus for 2012.
“Of particular concern: Growth in low-rate first mortgages continues to far exceed growth in overall loans,” said NCUA. “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.”
While delinquency and charge-off ratios stabilized through the third quarter, the percentage of loans with delinquencies greater than 12 months increased, indicating that charge-offs may spike in the near future, said NCUA.
Consequently, NCUA said its examiners will be focusing on credit unions with elevated levels of credit, interest rate, liquidity and concentration risks.
