Steps to effectively manage risk in MBL portfolios

Submitted by sevans on Tue, 12/02/2014 - 3:29pm

Managing Risks in MBL Portfolios:

  • Increase or maintain strong net worth level
  • Ensure Allowance for Loan and Leases Losses (ALLL) are adequately funded
  • Manage business loan portfolios closely
  • Maintain updated financial and analytical information
  • Strengthen the loan workout infrastructure 

Risks in Business Lending:

Business Lending Concentration Risks:

The credit risk assessment should identify potential concentrations by stratifying the portfolio into segments that have common risk characteristics or sensitivities to economic, financial, or business developments.

 

Business Loan Participation Risks

MBLs under $50,000 are not considered a MBL by NCUA

Submitted by sevans on Tue, 12/02/2014 - 3:18pm

 Under §701.21(h)(1)(i)(C), a loan, otherwise meeting the definition of a member business loan, is not considered a business loan if the loan amount, when added to other business loans of a borrower, is less than $50,000. A federal credit union's participation interest in a business loan does not have to satisfy the member business loan requirements if the participation loan amount, when added to other business loans of the borrower, is less than $50,000.

Personal guarantees required for loans to business entities

Submitted by sevans on Mon, 12/01/2014 - 3:46pm

Unless a regional director grants a waiver, the member business loan regulation requires a guarantee by a natural person for a loan to a business entity, such as a corporation; the regulation provides an exception from the guarantee requirement for certain not for profit organizations. 12 C.F.R. §§723.7(b), 723.10. The regulation identifies the natural person guarantors as “principals.” 12 C.F.R.§723.7(b) (“Principals . . . must provide their personal liability and guarantee.”) 

Aggregate MBL limits and exemptions there to

Submitted by sevans on Mon, 12/01/2014 - 3:41pm

A credit union is exempt from the aggregate (MBL)  limit if it: (1) Was chartered for the purpose of making MBLs; (2) has a history of primarily making MBLs; (3) serves predominantly low income members; or (4) is a community development financial institution. For credit unions that are not exempt, the amount of the aggregate limit is the lesser of 1.75 times the credit union’s net worth or 12.25% of the credit union’s assets. Thus, for credit unions with a net worth ratio of 7% or more, the limit is 12.25% of assets.

NCUA regulations regarding unsecured MBLs

Submitted by sevans on Mon, 12/01/2014 - 3:40pm

… the final rule permits credit unions to make unsecured MBLs, in addition to credit card line of credit programs offered to nonnatural person members, if: (1) The credit union is ‘‘well-capitalized’’ as defined in 12 CFR 702.102(a)(1); (2) the aggregate of unsecured MBLs to one borrower does not exceed the lesser of $100,000 or 2.5% of the credit union’s net worth; (3) the aggregate of all of the credit union’s unsecured MBLs does not exceed 10% of the credit union’s net worth; and (4) the credit union addresses unsecured loans in its written MBL policy.

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