During this time period and since, NCUA increased supervisory Ohio same day loans oversight of credit unions involved in business lending, especially those in challenging markets. NCUA also began collecting more specific MBL data on credit union Call Reports. In 1987 the agency adopted its first Rule and Regulation specifically devoted to member business lending.
Over the years NCUA has inaeased underwriting standards, collateral requirements, and management qualifications. These rules also set a solid foundation for this form of credit to be extended in a safe-and-sound manner during the 1990s. These six stales are Connecticut, Maryland, Oregon, Texas, Washington and Wisconsin.
A member business loan is defined as any loan, line of credif , or letter of credit, where the proceeds will be used lor a commercial, corporate, other business investment property or venture or agricultural purpose. Twenty-five Ohio same day loans percent of these credit unions grant MBLs. This small subsel of credit unions accounts for over one-third of all credit union agricultural lending. Fifty-nine of these 120 credit unions are also low- income designated and counted in the footnote above. Thus, the other 6,115 credit unions— about 85 percent of all credit unions, representing 94 percent of assets and 75 percent of current member business lending— are subject to the statutory cap. Effective member business lending requires the creation of internal policies and procedures to engage safely and soundly in this activity. It also requires the hiring of professionals with sufficient knowledge of business lending to judge the quality of the loan applications and to monitor the performance of the loans once made— especially cash flow, portfolio management, and liability issues. The low statutory cap also acts as a deterrent, keeping many credit unions out of member business lending entirely. With the cap, it is difficult to achieve the necessary economies of scale in terms of personnel and systems to make this type of program cost-effective. As a result, some credit unions that would otherwise elect to meet their member business financing needs do not offer member business loans. Figure 2 shows the share of credit unions subject to the cap participating in member business lending and the extent of their participation relative to the asset-based cap. As of March 201 1 , 289 credit unions (including 11 37 those with grandfathered regulatory waivers) are at or near the current statutory MBL cap.
Thereare lllGcredit unions with low-income status atrd UOcredit unions with charter exemptions. As credit unions continue to offer MBL services to their members, more credit unions will approach the statutory limit, thus limiting the avenues of credit available to small businesses. NCUA projects that credit unions could extend several billion more dollars in member business loans in the first few years after passage and implementation of S. If each credit union most likely to qualify immediately for higher MBL limits under the bill increased Under S.
Subject to supervisory considerations, these credit unions could only increase their MBL portfolios on a gradual basis, by no more than 30 percent annuaily. Additionally, the legislation would prevent credit unions operating in the second tier that subsequently fall below a well capitalized level from underwriting new MBLs until such time as the credit union becomes well capitalized. Also, the legislation would establish safeguards to ensure that NCUA has the powers needed to protect the Ohio same day loans safety and soundness of credit unions engaging in increased levels of member business lending.
Among others, these criteria would require the applying credit union to be well capitalized and well managed, have at least five years of experience in member business lending, and operate near the first-tier MBL cap for at least four consecutive quarters. Credit unions receiving approval from the NCUA Board to operate in this second tier virould have the ability to underwrite MBLs up to 27.
In addition, some credit unions that are not presently near the cap, including some that do not make MBLs, are likely to increase their MBL activity because they could achieve appropriate economies over the long term with the higher cap. How quickly and to what degree credit unions would respond remains uncertain. At this time, the portfolios of many credit unions are invested heavily in long-term, fixed- rate mortgages. Such assets have greater exposure to interest-rate risk. Although it may seem counter-intuitive, allowing credit unions to engage in more member business lending is another way in which to prudently manage risk. An increase in the member business lending cap could allow credit unions to diversify the risk of their loan portfolio, with member business lending typically involving less interest-rate risk than long-term, fixed-rate mortgages. Member Business Lending in Credit Unions Today Within the constraints of the statutory cap on MBLs. Such loans can have far-reaching and positive impacts throughout a community by creating jobs and promoting local commerce. Credit Union MBL Statistics As of March 31, 201 1, 30 percent (2,148) of credit unions provide credit to businesses. The level of delinquent member business loans has increased from 0. The average MBL delinquency ratio by credit union, however, is 2. Credit unions located in states hit the hardest by the economic distress of the last few years hold a disproportionate Ohio same day loans amount of the delinquent MBLs. The credit unions located in the sand states account for 49 percent of losses on MBLs.
As Figure 6 illustrates, despite the recent increase during the economic downturn, current credit union MBL delinquency levels remain lower than other federally insured personal loans Utah financial institutions. Of the 55 credit union failures in 2009 and 2010, only one failure was primarily related to MBLs. MBLs were one of several factors contributing to the failure of eight other credit unions. Thus, the vast majority (46) of credit union failures during this period were unrelated to member business lending. When real estate values declined to the point that credit lines were no longer supportable, the businesses defaulted. While the nine failures illustrate some of the risks of member business lending if not well managed, member business lending can be conducted in a safe, sound and prudent manner with appropriate regulatory safeguards. Such lending activity by credit unions can be of significant benefit to the small business community that is too often limited in its access to credit.