The National Credit Union Administration (NCUA) recently released its 2025 Supervisory Priorities, highlighting key areas of focus for the agency in the year ahead.
While sound oversight and management of all risk areas remain important, understanding the NCUA’s 2025 priorities can help industry professionals address key areas projected to experience heightened levels of stress and increased regulatory scrutiny.
Here, ALM First breaks down the major changes from last year and shares practical tips to help your credit union’s management team prepare for its next examination.
Credit Risk Remains Top of Mind
Credit risk concerns are still at the forefront for the industry and its regulator, particularly in consumer portfolios with delinquencies and charge-offs that remain elevated. In 2025, examiners will continue to focus on underwriting, allowance methodology, charge-off practices, risk management and reporting, and concentration risk management.
Risk management, reporting, and concentration risk management are new callouts in the NCUA’s 2025 supervisory priorities. Although these items were not specifically noted last year by the agency, these topics are always important for sound credit risk management. Management teams should ensure that their board reporting sufficiently informs the board of current credit risk and that their concentration management methodologies are well supported.
Balance Sheet Management Encompasses Liquidity & IRR
The 2024 supervisory priorities specifically listed liquidity risk and interest rate risk as areas of focus. Now, these topics are broadly covered under the title of Balance Sheet Management and Risk to Earnings and Net Worth.
The agency notes that falling rates could result in higher prepayments. Although the current market expectation bias is higher rates for longer, institutions should continue to ensure that undue risk exposures are not present for rising or falling rate environments.
The 2025 release also references operating expenses. As asset growth rates have slowed and, in some cases, become negative, operating expenses have become a larger burden on profitability. Achieving operational efficiencies will be crucial for sustainable profitability in 2025 and beyond.
More broadly, the priorities state that approved budget plans and operating thresholds will be compared to current capital and earnings levels. If an institution is operating with tight net worth and thin profitability, examiners will likely question operating limits that may result in further pressure on earnings and capital.
Cybersecurity Will Continue to Be a Hot Topic
Cybersecurity is once again listed as a supervisory priority. Prolonged and highly publicized cyber-attacks happened multiple times in 2024, shining the light even brighter on an already hot topic.
Examiners will continue to focus on and promote strong information security programs along with strong third-party risk management programs.
Focus on Consumer Protection Remains
Consumer protection is also a repeat focus from 2024 for the NCUA. Specific consumer protection topics referenced include:
- Overdraft programs
- Fair lending
- Home Mortgage Disclosure Act and Regulation C
- Military Lending Act
- Electronic Fund Transfer Act and Regulation E
Updates Around Examinations & Minority Deposit Institutions
Lastly, the 2025 priorities provide updates around examinations and the Minority Depository Institution Preservation Program.
In terms of exam updates, the NCUA will be updating its exam flexibility initiative to provide an extended exam cycle for credit unions over $1B in assets. Institutions with CAMELS composite of 1 or 2 and no change in CEO since the last exam will be eligible for a 12 to 16-month exam cycle. Slightly offsetting this relief, the letter notes that the extended exam cycle for eligible federal credit unions will be shortened from 14 to 20 months to 14 to 18 months.
The priorities also note that the Federal Financial Institutions Regulators and Financial Crimes Enforcement Network continue to implement the Anti-Money Laundering Act of 2020 and institutions should remain aware of changing Bank Secrecy Act, anti-money laundering, and countering the financing of terrorism regulatory requirements.
Regarding the Minority Depository Institution (MDI) Preservation Program, the supervisory priorities release notes that the NCUA remains committed to supporting MDIs and will continue to offer customized support to credit unions with less than $100 million in assets and MDIs of all sizes through its Small Credit Union and MDI Support Program.
Preparing For Your Next Exam
The NCUA Supervisory Priorities appropriately highlight many risk areas that are top of mind among the industry. For credit unions to continue to effectively serve and meet the needs of their members, risk exposures must be appropriately measured, monitored and controlled. Many of the priorities outlined by the NCUA can be tackled in the normal course of business, through focused allocation of internal resources. However, management teams may desire an external perspective and engage third parties for risk modeling and consulting. Regardless of the approach, enhancing risk management practices to address 2025 Priorities should facilitate smoother regulatory reviews and an overall improved preparedness.
Looking for a trusted partner to assist with risk management? Contact ALM First’s team of experienced professionals today to discuss your credit union’s needs.
