WASHINGTON—With NCUA’s new member business lending rule in effect, CUNA is stressing that credit unions need to ensure they are in compliance and fully understand all of the new requirements.
CUNA noted that Section 723.4 of the MBL rule has been of particular concern for credit unions, as it requires all credit unions to adopt and implement a board-approved commercial loan policy and establish detailed commercial lending procedures.
According to CUNA, the CU’s commercial loan policy should address, at a minimum:
- Types of commercial loans permitted
- Trade area
- Portfolio concentration limits
- Single borrower limits
- Qualifications/experience requirements for lending staff
- Loan approval process
- Underwriting standards
- Risk management processes
CUNA added that the guidance also details expectations for underwriting standards, as the lending policy should address the financial analysis and depth of review to support the credit decision, including:
- Meet due diligence requirements to evaluate the borrower’s ability to service the debt
- Requirements for financial projections
- The quality of the financial information or statements used to make the credit decision, using the level of assurance provided by a preparer and the required professional standards supporting the preparer’s opinion
- Type of collateral allowed, loan-to-value limits, personal guarantees and methods used for valuing the types of collateral.
Credit unions must also establish policies and procedures to identify and manage risk, including a formal credit risk rating system to identify and assign a credit risk rating to each commercial loan in the portfolio, CUNA said.
“This is not a one size fits all approach; the scope and scale of a credit risk rating system will depend on the variety of product types and the complexity of the commercial loan portfolio,” stated CUNA. “Credit unions must assign a credit risk rating at loan inception and review ratings as often as necessary. The criteria used to assign each rating should be risk sensitive, suitable for the types of loans underwritten, and should produce a consistent and repeatable assessment of risk, and the system should have an adequate number of ratings to differentiate the varying levels of risk.