Lending Advisory for Class 2 Credit Unions and Caisses Populaires

January 2009

In February 2007, DICO published a Guidance Note on Lending which is available on our website. This Guidance Note sets out DICO’s expectations regarding the management of commercial loans and other higher risk loans. As well, it includes our expectations that each class 2 institution will develop and implement an appropriate and robust loan management program.

In view of the current economic and market conditions and the significant potential increase in risk exposure, we recommend that institutions review this Guidance Note and ensure that they have fully implemented these requirements.

These requirements include:

  • Prudent lending policies that take into account the knowledge and expertise of management and staff and the strength of the credit union’s capital (ability to absorb losses);
  • Specific policies, procedures, reporting and monitoring requirements for large exposures and syndicated loans;
  • A Risk Rating system for all loans other than personal and mortgage loans;
  • A “Watchlist” process where all higher risk loans are identified and more closely monitored; and
  • Withdrawn amounts can be re-contributed any time after the year of withdrawal
  • Establishing limits and monitoring Industry Concentration Risk.

In particular, given the current conditions, institutions may also wish to consider the following best practices:

  • Reviewing each commercial loan file to ensure all documentation is up to date, i.e, financial statements and forecasts, financial and risk analysis, insurance certificates have been obtained, property taxes are current and all covenants have been met;
  • Ensuring that all commercial property borrowers have updated their list of tenancies, including the terms of their leases; and
  • Increasing the frequency of their site visits.

Specific tools have been developed by an industry working group to assist institutions implement these requirements and are also available on DICO’s website. Additional training programs have been specifically developed to address these requirements and are available through CUSource . Institutions are encouraged to utilize these resources if they need any assistance in implementing the requirements outlined.

DICO will continue to assess the robustness and appropriateness of the credit unions' lending program as part of its on-going examination program.