In today’s changing financial landscape, credit unions face a host of challenges when it comes to maintaining stability and ensuring member protection.
Recently, the National Credit Union Administration (NCUA) outlined its supervisory priorities for 2024, highlighting several key areas of focus.
Below we’ll breakdown what’s top of mind for credit union leaders navigating risk.
Credit Risk and Economic Environment:
Credit risk management is essential for credit unions to safeguard their financial health. Inflation and high interest rates have made credit risk assessments even more important this year. Metrics such as delinquency ratios and loan loss forecasting methods play a crucial role in identifying potential risks and implementing appropriate risk-mitigation strategies.
U.S. Credit Unions | Data as of 12.31.2023
-
The coverage ratio measures the amount credit unions have set aside in their allowance account relative to delinquent loans outstanding, making it an important measure of protection against credit risk.
-
As of year-end, U.S. credit unions had an average of $1.53 set aside for every dollar of delinquent loans on their books. This is still at a healthy level, but coverage declined throughout 2023 despite credit unions increasing their provision expenses.
Pro Tip For Peer Suite Users
As you prepare for upcoming regulatory conversations, we recommend leveraging the brand new 2024 NCUA Supervisory Priorities dashboard in Peer Suite.
Not yet a Callahan client? If you’re interested in viewing your credit union’s performance dashboard, complete this form and our team will be with you shortly.
Liquidity Challenges and Opportunities:
Liquidity management is paramount for credit unions to ensure their ability to meet member needs and obligations. Amid declining share growth, credit unions face liquidity challenges that require careful navigation.
Strategies for attracting deposits and leveraging liquidity to support members not only safegaurd financial stability but also enhance member satisfaction and trust.
U.S. Credit Unions | Data as of 12.31.2023
-
Available borrowing capacity relative to assets measures the strength of credit unions’ liquidity safety net. This is important if the credit union needs to quickly source funds to maintain liquidity and institutional stability should economic conditions worsen.
-
The credit union industry had an available borrowing capacity of 22.49% of assets as of December 2023. This signals that the industry as a whole is prepared for potential liquidity emergencies.
Interest Rate Risk Management:
Effective management of interest rate risk is crucial for credit unions to protect their balance sheets and maintain profitability. In a volatile interest rate environment, credit unions must carefully monitor investment portfolio strategies and asset repricing practices.
Understanding the implications of interest rate fluctuations on loan paydown rates and asset valuations allows credit unions to make informed decisions and mitigate potential risks.
U.S. Credit Unions | Data as of 12.31.2023
-
Credit unions’ investment portfolios that hold long-term securities will generally experience more volatility when interest rates change. Credit union examiners will be watching for this.
-
The weighted average life of the industry’s investment portfolio was 2.77 years as of year-end. This is an improvement from December 2022 because credit unions slowed purchases of longer-term securities. As securities matured, credit unions kept the proceeds in cash or short-term investments to improve liquidity.
The NCUA’s 2024 supervisory priorities offer valuable guidance for credit unions. By prioritizing credit risk, liquidity, consumer financial protection, and interest rate risk management, credit unions can enhance their resilience and ensure their long-term success.
Evaluate Your Risk | Free Performance Dashboard
With a focus on liquidity, credit, and interest rate risk focus areas, we’ll help you uncover your institution’s performance against local and industry-wide peers.
We request 30 minutes of your time to create a peer group that’s most relevant to your institution, and you’ll get to keep the results for free.
More Blogs
3 Ways To Use 2Q21 Data
The NCUA has officially released second quarter credit union data. Callahan provides your credit union a multitude of ways to analyze this updated data to benefit your cooperative. Here are three: 1. Build custom tables in Peer-to-Peer In Peer-to-Peer, credit unions...
Recapping The Impact Network Meet-Up
On August 17, dozens of credit unions joined Callahan & Associates for the first ever Impact Network Meet-Up. This event, which was open to Impact Network participants only, was created to help participating credit unions form connections, start impact-related...
2Q21 Credit Union Trends and Takeaways
More than 1,200 industry peers joined us on Aug. 11 for 2Q 2021 Trendwatch. Callahan highlighted trends in lending, membership, and more as behavior amongst credit union members changed in accordance with the steady economic reopening. Most notably, credit union...
We’re Re-Building Peer-To-Peer From The Ground Up, Here’s What You Can Expect
Intuitive design. Faster analysis. Enhanced reporting. All packaged into a sleek, modern interface. Those are just a few of the changes you can expect with the launch of Callahan’s Peer+ software, coming January 2022. We’re excited to share that the classic...
This Month In Impact
This year, Callahan began our impact initiative, in which we seek to build a network of credit unions with the goal of empowering member-owned financial cooperatives to better articulate their value through a mission-focused lens with the help of new metrics and best...
1Q21 Strategy & Performance Now Available For Download
One of the premier publications produced by Callahan & Associates is Strategy & Performance, a quarterly magazine that highlights the newest trends and data from around the credit union industry. As the industry emerges from the other side of a strenuous and...
4 Impact Articles To Read
Callahan’s Impact Center is a compilation of webinars, publications, tactical documents, and more, all centered around creating a positive community impact. The Impact Center also features case studies and blog posts from creditunions.com that highlight how...
1Q21 Credit Union Takeaways and Trends
Amidst an industry landscape that is undergoing massive changes as a direct result of the COVID-19 pandemic, credit unions found a multitude of ways to adapt to the evolving needs of their members. Using data obtained from credit unions during the first quarter of...
Register For A Roundtable Today
Virtual Roundtables cover key areas across the credit union industry like technology, collections, HR, member experience, marketing, risk, lending, and more.
Introducing The Credit Union Impact Center
The Impact Center is a compilation of webinars, publications, tactical documents , and more, all centered around creating a positive community impact.