Rising interest rates taking toll on credit unions, report finds, with more posting lower exam ratings

The number of credit unions with lower exam ratings increased in the third quarter, which federal supervisors attributed to the rising interest-rate environment, the federal credit union regulator said Thursday.

A report presented to the National Credit Union Administration (NCUA) Board at its regular monthly meeting stated that the number of credit unions with composite exam scores under the CAMELS rating system of 4 and 5 increased in the third quarter to 120, up 2.6% from the previous period. Assets for those credit unions receiving the lowest ratings were $3.8 billion, up 2.7% from the second quarter, the agency said.

At the same time, according to the NCUA report, the number of CAMELS code 3 credit unions at the end of the third quarter was 768, up 755 at the end of the previous quarter (1.7%). Assets for the third quarter CAMELS 3s totaled $47.9 billion, NCUA said – up 7.6% from the previous quarter ($44.5 billion).

In a statement, NCUA Board Chairman Todd Harper called the increase in the numbers of CAMELS 3, 4 and 5 credit unions “unfortunate,” linking the increase to rising interest rates. He also pointed to rising liquidity issues at credit unions, particularly large ones.

“Additionally, several credit unions have experienced liquidity issues recently, including some with more than $1 billion in assets,” Harper said. “And, with ongoing inflationary pressures and continued interest rate increases likely, the potential for headwinds slowing the economy and increasing stress on households and financial institutions continues to grow.”

The board was also told that, as of the end of the third quarter, four federally insured credit union failed, costing the National Credit Union Share Insurance Fund (NCUSIF) $7.0 million in losses. (Just this week, NCUA announced it had shutter two more credit unions, bringing the year’s total to six closed.)

Share Insurance Fund Reports Strong Performance in the Third Quarter

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