Thursday, December 5, 2013

CUs Increase Their Exposure to Long-term Assets

The third quarter financial data show that credit union industry is increasing its investments in long-term assets at the same time long-term interest rates have begun to rise.

Between September 30, 2012 and September 30, 2013, the net long-term asset to asset ratio for the industry rose by 275 basis points from 32.96 percent to 35.71 percent. The net long-term asset ratio for the industry as of September 30, 2013 is 522 basis points above the 10-year average of 30.49 percent.

Additionally, over the last year, the supervisory interest rate risk threshold to net worth ratio increased by 10.97 percentage points from 262.96 percent to 273.93 percent.

In addition, rising rates have caused the market value of the available for sale portfolio at credit unions to fall. Over the course of the last year, the credit union industry has gone from having an unrealized gain on its available for sale securities portfolio of slightly more than $2.6 billion at the end of September 2012 to an unrealized loss of $1.1 billion on its available for sale securities at the end of September 2013. Credit unions will only have to recognize these losses, if they sell these securities.

As NCUA Chairman Debbie Matz cautioned, credit unions "have been making longer-term investments to increase yield. If credit unions haven’t planned carefully, the value of those investments could decline when rates rise."

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