NCUA: Put ROA in perspective
ALEXANDRIA, Va. (8/21/06) Chief Economist Bill Hampel of the Credit Union National Association (CUNA) said Friday that many federal credit unions will welcome recent assurance by their regulator that it is not necessary to reach a 1% ROA just to achieve the highest CAMEL 1 rating.
The National Credit Union Administration (NCUA) issued a supervisory letter clarifying that agency examiners are expected to evaluate each credit union's earnings level relative to net worth needs, financial and operational risk exposures, the current economic climate, and the institution's strategic plans.
"Striving for an arbitrary 1% Return on Average Assets to achieve a CAMEL 1 rating...is not an acceptable argument, especially in the current economy, for a well-capitalized credit union," the letter said.
"Lower ROA levels will be viewed positively if they are the result of a sound and well-executed strategy to balance risk exposure or incur costs to position the credit union to achieve longer-term growth and member-service objectives," the letter also noted.
That last point, according to CUNA's Hampel, is an important one in the current rate environment dominated by a flat yield curve.
"Credit unions should now feel more confident in pursuing fee structuring strategies that will encourage membership and savings growth when and where appropriate," he said.
To read the six-page supervisory letter entitled Evaluating Earnings in Credit Unions plus cover letter, both signed by NCUA Office of Examination and Insurance Director David M. Marquis, use the link below.
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