With the NCUA’s new member business lending (MBL) rule is in effect, credit unions need to ensure they are in compliance and fully understand all of the new requirements. A recent entry in CUNA’s CompBlog takes a closer look at the guidance published in December by the NCUA, which provides more detail and sheds some light on examiner expectations.
Section 723.4 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.
The commercial loan policy should address, at a minimum:
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:
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.
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.
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.
Additional details on the guidance, including information about minimum requirements for identifying and managing risk and the specifics of a dual rating system and why it may be appropriate for more complex portfolios, can be found in CompBlog.