WASHINGTON––Credit unions have more than tripled the amount of funds they have set aside as provision for loan and lease losses, although the move is not out of step with historical trends, according to a new analysis.
Callahan & Associates is reporting its review of preliminary data shows CU provisions for ALLL increased 341.8% year-over-year in the fourth quarter of 2022.
“As a percentage of average assets, provisions jumped from 0.06% one year ago to 0.25% at year’s end,” Callahan & Associates reported. “Despite the recent surge, this remains well below the historical average for the industry.”
The Callahan’s analysis found loan delinquency rates increased eight basis points quarter-over-quarter to 0.61%.
“Record-low delinquencies reduced the need for substantial provisions the past two years, but that will change if delinquency rises,” Callahan & Associates said in publishing its findings. “It is unclear whether the spike in delinquency was seasonal or if it will pick up steam in 2023.”
Callahan’s noted that relatedly, regulatory changes required by new CECL reporting standards may have some impact on how much credit unions set aside for loss coverage.
“Despite the rise in delinquency, credit unions remain well-covered with $1.25 set aside for every $1 of delinquent loans,” Callahan’s said.
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