Austin, TX – 17 April 2019 – In response to early stage auto loan delinquency increases, the Texas State Credit Union Department has felt it necessary to remind credit unions of their need to closely monitor these prime loan performance indicators. In those credit unions experiencing these increases, they are suggesting increasing collections activity as well as the tightening of underwriting guidelines to combat these increases.
After several years of strong loan growth some credit unions have begun to experience an increase in early stage delinquency, particularly in the 30 to 59-day category. Early stage delinquencies can be an indicator of future increases in reportable delinquency and higher loan losses. In conjunction with delinquency reporting at board meetings, credit union management is encouraged to provide its board members with monthly trend reports for past due loans in the 30 to 59 day delinquency category, and engage in a discussion of collection efforts on these loans.
Credit union officials have a responsibility to provide adequate administrative oversight of operations, which includes ensuring that appropriate action is taken to identify and address any adverse loan quality trends. Ultimately, rises in early stage delinquencies can result in increased losses which can impact the financial strength and integrity of a credit union.
If loan quality ratios decline, identifying and addressing the primary causes (loosened underwriting standards, limited collection activity, increased lending to lower credit tiers, and/or indirect lending issues, etc.), is essential to control and manage credit risk. The officials and management of a credit union should ensure that lending activities are monitored and consistent with the credit union’s overall business strategies and risk tolerances.
While not an overall red flag of warning, the fact that the state’s regulating body for credit unions would feel it necessary to remind all state credit union’s to engage in remedial auditory functions with enhanced responses to underlying deficiencies, shows possible suspicion of an overall sense of complacency that they apparently feel may have developed over the recent years of strong loan growth with low delinquency.
Source: Texas Credit Union Department
Facebook Comments