Wednesday, February 2, 2011

Interest Rate Risk Exposure

During the current low interest rate environment, credit unions in search of yield have increased their holdings of longer term assets. Credit union regulators have expressed concerns about credit unions taking on more interest rate risk, as an increase in market rates would cause the value of these long-term assets to drop.

For example, the Texas Credit Union Department in its January 2011 newsletter advised:

"credit unions with a Net Long-Term Assets Ratio near or exceeding 25 percent, policies and procedures should be in place to fully evaluate the impact of a 100-300 basis point increase in market interest rates. Each credit union’s policies and procedures for this area will be reviewed closely during the examinations completed in 2011."

As of the end of the third quarter of 2010, there were 872 credit unions with $50 million or more in assets with a Net Long-Term Assets Ratio of 25 percent or higher.

The following table ranks the top 50 credit unions with $50 million or more in assets that have the highest Net Long-Term Assets Ratio as of September 30, 2010. (click to enlarge the image)

1 comment:

  1. In case, you want to calculate this variable. Here is how NCUA calculates NET LONG-TERM ASSETS / TOTAL ASSETS. The sum of real estate loans which will not refinance, reprice or mature within 5 years, member business loans, investments with remaining maturities of more than 3 years, NCUSIF deposit, land and building, and other fixed assets divided by
    total assets.



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