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Matz: MBLs aid diversification
NCUA Chairman Matz said the ability to offer more business loans would help credit unions diversify their loan portfolios safely. – Tkatch photo |
Testifying before the Senate Banking Committee, Matz also said that among the 55 failures of insured credit unions from 2008-2009, a two-year period, only one failure was attributed primarily to a credit union's involvement in member business lending. Credit union member business lending "is being done prudently, by and large, and we are supervising . . . [to] make sure they have experienced staff and are underwriting properly," Matz said.
Matz told the panel that about 2,200 credit unions are currently involved in MBLs, and they tend to be institutions with more than $50 million in assets. Smaller institutions don't get that involved because it's unlikely they would get back what they invested in establishing the program.
Indeed, Matz said the 12.25 percent-of-asset cap deters other credit unions from starting programs as well.
Matz said fewer than 300 credit unions are bumping up against the cap now, but she estimated about 2,000 credit unions with more than $50 million in assets are likely candidates to launch new MBL programs if S. 509, which would allow a cap lift up to 27.5 percent of assets after criteria are met, became law.
Credit union MBLs make up only 1 percent of all commercial loans in the country, Matz testified, yet credit unions "serve an important role in lending to small businesses and continued to extend credit during the economic downturn."
She said credit unions typically make "the smallest of the small" business loan. The dollar-weighted average for MBLs is $223,000. She said the two most common types of loans, non-farm residential property loan sand commercial and industrial loans, average $160,000 and $127,000, respectively.
"These are very small loans, so I'm not concerned about the risky nature," she said. "As long as [the credit union is] prudently underwriting the loan, I'm not concerned that they're approving loans that banks have turned down." She added that, based on anecdotal accounts, most loans banks have rejected in this are due to the size of the loan, not the risk.
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