NCUA Tracking Emerging Credit Risks

NCUA examiners will be calling credit union managers early in May to try to spot any emerging credit risks resulting from the COVID-19 pandemic.

In a letter sent to credit union directors and CEOs Wednesday, NCUA Chairman Rodney Hood said the examiners, who have previously contacted them to check on their operational status and liquidity, are expanding their outreach “to also identify any emerging credit risks.” They will be calling May 4-18.

“You are helping us understand the challenges credit unions are facing so we can identify or develop the assistance you need,” Hood wrote.

The letter includes a link to a three-page list of questions. One asks credit unions whether they have adjusted their allowances for loan and lease losses (ALLL) “based on anticipated losses related to COVID-19? If so, what was the percentage (estimate) increase to the ALLL? (0-20%, 20-40%, 40-60%, 60-80%, 80-100%, or N/A).”

Credit unions have begun filing NCUA Call Reports this week, and a CU Times analysis of seven of the nation’s largest credit unions showed their loan loss allowances at the end of March were 36% higher than a year earlier.

Other questions in the attachment included:

• “In general, does the credit union have elevated exposure to impacted industries? If yes, which one of the following? (Manufacturing, Entertainment, Oil/Gas, Travel, Service, or Other).
• “Does the credit union have adequate cash on hand or access to cash to meet member needs?”
• “Has the credit union taken any of the following actions to improve liquidity? (Suspended reinvestments of asset rollovers, Sold assets, Other, N/A, or Unknown).”
• “Has the credit union experienced an increase in loan forbearance requests over the past month?” It then asks for percentages of portfolios by loan type and average durations.
• “Is the credit union offering programs to assist members impacted by COVID-19? If yes, has the credit union developed a system for tracking these programs?”
• “Does the credit union have adequate collection staff to handle an increase in collections and workouts? If not, does the credit union have access to a third party to assist?”
• “What dollar amount (estimate) has the credit union granted in emergency, unsecured loans related to COVID-19?”

The letter also asked about credit union participation in the Paycheck Protection Program. The PPP is designed to provide forgivable loans to small businesses to help avoid job losses during the pandemic, but has been plagued with problems from balky online portals to practices that allowed big banks to draw much of the funds for their largest eligible clients.

In addition to calling on credit unions, the NCUA has been monitoring the impact of COVID-19 through information provided by corporate credit unions, other financial service providers and other government agencies.

Earlier this month, NCUA sent a letter to credit unions to urge them to join its Central Liquidity Facility, even if they don’t need its assistance now to counter financial damage from the coronavirus crisis.

From previous contacts, the NCUA found few credit unions needed to increase borrowing as part of their liquidity planning. On the operations side, it found many had curtailed some services.

“Many credit unions noted their lobbies are generally closed, but the vast majority are offering lobby appointments. Credit unions that are not offering lobby appointments are providing services using a drive-thru, or offering appointments at another location,” Hood wrote.