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Forty percent of all respondents surveyed for the latest NAFCU Economic & CU Monitor said they are concerned about their credit unions' interest rate risk, a finding that jibes with NAFCU's previous entreaties to NCUA for more tools and guidance generally on risk management issues.

Interest rate risk management is one of several key areas that NCUA examiners will be focused on this year, the agency announced in January. NAFCU Chief Economist David Carrier said "it will be critical for credit unions to prepare for the inevitability of rising interest rates over the coming months, since rates can only go up from their historically low levels."

The February newsletter, released Friday, found that loan portfolios will change in several ways as credit unions prepare to compete in a rising rate environment. For example, 21.8 percent of respondents said they will reduce the amount of first-time mortgage loans; 67.9 percent said they will increase their auto lending; and 46.3 percent said they will boost their credit card lending. Significant percentages of respondents plan to reduce holdings of longer-term mortgages.

Respondents also provided the following:

• Fiscal cliff/debt ceiling: More than one-third (34.5 percent) said they're concerned about how this debate will affect interest rate risk.
• Hedging (generally): Investment vehicles were most often cited (72.9 percent) as tools for hedging against interest rate risk. Also cited – the secondary mortgage market (47.9 percent) and Federal Home Loan Banks (45.8 percent).
• Derivatives: 18.3 percent said they would utilize derivatives to hedge against interest rate risk if NCUA allowed well-run credit unions to do so.
• Rates: Only 3.3 percent of respondents said they believe interest rates will increase significantly this year.

The February Monitor also includes the most recent reporting of economic conditions, an updated economic forecast for 2013, and an updated Regional Outlook of credit union conditions.

• Economic & CU Monitor (members only)