Information Note from Monitoring Department August 2012

Camels Ratios
Introduction:
As Credit unions will be aware, the Final Report on the Commission of Credit nions
made the following re!ommendation" # It is the Commissions view that the CAMELS
system is preferable as a way of assessing viability. It is a tried and tested mechanism
internationally which draws from prudential returns and on site monitoring.
urthermore! it offers a ready way of thin"ing about viability as both an holistic
concept and a relative assessment framewor". #owever! for the purposes of informing
future decisions about credit unions! CAMELS needs to be augmented with forward
loo"ing analysis! based on a $CA% and other metrics&.
$he I%C Monitoring Department uses the &'AR%( Monitoring s)stem, as
de*eloped and endorsed b) +,CC and &'AR%( is in use in !redit unions
worldwide- Initiall) the I%C adopted the &'AR%( s)stem following passing of the
following Resolution at .DM 200/" Resolution No. 47: 'hat this (iennial )elegate
Meeting! in "eeping with best international credit union standards and practice!
adopts the $EA%LS Monitoring System amended as appropriate to suit the Irish
Credit *nion Movement circumstances&.
Next steps review of both systems: $he I%C Monitoring Department are
!urrentl) re*iewing and !omparing the CAM'% and &'AR%( s)stems, and the
different approa!hes ta0en under ea!h s)stem, in order to go forward following best
international pra!ti!es, and in order to pro*ide the best possible finan!ial reporting
and information to I%C !redit unions that are fa!ing an e1tremel) !hallenging
en*ironment- $he I%C Monitoring Department has been !onsulting with +,CC
regarding the merits and limitations of both &'AR%( and CAM'%2(3 s)stems-
During this re*iew we must also be mindful of pending legislation and the
Commission4s re!ommendations regarding the introdu!tion of a &rudential Rule
.oo0" #that would set out in detail what is re+uired in each of the relevant areas. 'he
%ule (oo" should include prudential controls! limits! standards and re+uirements on
"ey areas! including, reserves- lending- investments- borrowing- members savings-
li+uidity&- $he goals and ben!hmar0s that will be set out must be in!orporated into
the I%C Monitoring s)stem-
$he I%C Monitoring and IC$ Departments are loo0ing at in!luding CAM'%
dashboards in the I%Cbis platform, whi!h would pro*ide the rele*ant *isual
indi!ators for I%C !redit unions-
Differences between PER!" and C#E!" systems: $he &'AR%( s)stem
5uantitati*el) e*aluates the finan!ial stru!ture of the !redit union balan!e sheet- $he
ad*antage of this approa!h is that this 5uantitati*e ob6e!ti*it) limits the possibilit) of
a super*isor or e1aminer influen!ing a rating- $his is one of the primar) reasons
I%C originall) sele!ted &'AR%( in 200/-
CAM'% is different from &'AR%( be!ause CAM'% is a mi1 of both 5uantitati*e and
5ualitati*e fa!tors, whereas &'AR%( is 6ust 5uantitati*e- nder NCA4s approa!h to
CAM'%, none of the numbers assigned in the CAM'% Ratings ()stem are purel)
5uantitati*e- Rather the number assigned whi!h ranged from 1 through 7 2with #18
being the best and #78 being wea0est3 for the o*erall CAM'% rating and for ea!h of
the !omponents of CAM'% depends on the NCA e1amination team4s o*erall
holisti! opinion of the !redit union4s !ondition after ta0ing into a!!ount the numeri!al
ratios re5uired b) other NCA regulations, 2su!h as NCA4s regulation on regulator)
!apital ratios3- $he e1aminers4 sub6e!ti*e 6udgments therefore are the determining
fa!tor regarding what numbers are assigned-
If the I!C$ incorporate a C#E! system in time %on the I!C$bis platform&'
additional ris( scorin) of credit unions based on their overall profile and a ris(
assessment may be part of the new system* +his ris( scorin) would be based on
current I!C$ (nowled)e of the credit union' reviews of credit union ris(
mana)ement plans and,or strate)ic plans' and on)oin) field officer inspections*
Example C#E! Ratios the I!C$ are considerin):
Key NCUA CAMEL Ratios
1 Capital Code 1 (strongest) >20 Code 5 (weakest) <5%
2 Asset Quality
Delinquent oans!oans
"et C#arge o$$s!oans
Code 1 (strongest) <1%5%
Code 1 (strongest) <0%5%
Code 5 (weakest) >25%
Code 5 (weakest) >10%
& 'arnings
(eturn on assets Code 1 (strongest) >1% Code 5 (weakest) <0%15%
NCUA CAMEL Ratios ILCU PEARLS Ratios equivalent
1 Capital ') Capital (atio
2 Asset Quality
Delinquent oans!oans
"et C#arge o$$s!oans
A1 (atio
A1* (atio
& 'arnings (& +otal ,n*!A-g +otal Assets
-ther considerations:
$he Central .an0 is !ontinuing to use statutor) Ratios 2su!h as Regulator) Reser*e,
%i5uidit)3 whi!h mat!h our !urrent I%C &'AR%( ratios, and are not adopting
CAM'%- $he Central .an0 is not assigning CAM'% t)pe s!ores 197 for Regulator)
ratios- $he !redit union4s ratio is either #!ompliant8 or #not !ompliant8, a s!ore is not
assigned- :owe*er, a low RRR would ob*iousl) draw Regulator) attention- As
mentioned earlier, a CAM'% t)pe s)stem would be in 0eeping with the &RI(M
Regulator) framewor0-
C#E!%"& .ac()round: $he CAM'% s)stem is the National Credit nion
Asso!iation4s 2 NCA3 super*isor) monitoring s)stem for -(- !redit unions- $he
NCA adopted CAM'% initiall) ba!0 in 1;<=- An ( was added to CAM'% " 2(
standing for (ensiti*it) to mar0et83 later added for ban0s onl), the ( is not appli!able
for !redit unions-
NC$ information on C#E!: $he CAM'% rating s)stem is based upon an
e*aluation of fi*e !riti!al elements of a !redit union>s operations" Capital Ade5ua!),
sset ?ualit), #anagement, Earnings, and !i5uidit)@Asset9%iabilit) Management-
CAM'% is designed to ta0e into a!!ount and refle!t all signifi!ant finan!ial,
operational, and management fa!tors e1aminers assess in their e*aluation of a !redit
union>s performan!e and ris0 profile-
'1aminers rate !redit unions based on their assessment of the indi*idual !redit union
rather than against peer a*erages- $he CAM'% ratings should refle!t the !ondition of
the !redit union regardless of peer performan!e- '1aminers are e1pe!ted to use their
professional 6udgment and !onsider both 5ualitati*e and 5uantitati*e fa!tors when
anal)Aing a !redit union>s performan!e- (in!e numbers are often lagging indi!ators of
a !redit union>s !ondition, the e1aminer must also !ondu!t a 5ualitati*e anal)sis of
!urrent and pro6e!ted operations when assigning CAM'% ratings-
&art of the e1aminer4s 5ualitati*e anal)sis in!ludes an assessment of the !redit union4s
ris0 management program- In Ris0 Fo!used '1aminations 2RF's3, e1aminers assess
the amount and dire!tion of ris0 e1posure in se*en !ategories" Credit, Interest Rate,
%i5uidit), $ransa!tion, Complian!e, Reputation, and (trategi! 2se*en ris0 !ategories3
and determine how the nature and e1tent of these ris0s affe!t one or more CAM'%
!omponents-
Although the CAM'% !omposite rating should normall) bear a !lose relationship to
the !omponent ratings, the e1aminer does not deri*e the !omposite rating solel) b)
!omputing an arithmeti! a*erage of the !omponent ratings- '1aminers !onsider the
interrelationships between CAM'% !omponents when assigning the o*erall rating-
(ome of the e*aluation fa!tors are reiterated under one or more of the !omponents to
reinfor!e the interrelationships between !omponents- $he se!tions below !ontain the
CAM'% !omponent and !omposite ratings-
C#E! C-#P-NEN+ R+IN/"
CPI+!
A !redit union is e1pe!ted to maintain !apital !ommensurate with the nature and
e1tent of ris0 to the institution and the abilit) of management to identif), measure,
monitor, and !ontrol these ris0s- $he effe!t of !redit, mar0et, and other ris0 on the
!redit union4s finan!ial !ondition is !onsidered when e*aluating !apital ade5ua!)- $he
t)pes and 5uantit) of ris0 inherent in a !redit union4s a!ti*ities will determine the
e1tent to whi!h it ma) be ne!essar) to maintain !apital to properl) refle!t the
potentiall) ad*erse !onse5uen!es these ris0s ma) ha*e on the institution4s !apital-
Regulator) !apital re5uirements are minimum le*els and separate and distin!t from a
!redit union4s need to maintain !apital !ommensurate with the le*el of ris0 inherent in
operations-
R+IN/"
A !apital ade5ua!) rating of 1 indi!ates sound !apital relati*e to the !redit union4s
!urrent and prospe!ti*e ris0 profile-
A rating of 2 indi!ates satisfa!tor) !apital relati*e to the !redit union4s !urrent and
prospe!ti*e ris0 profile-
A !apital ade5ua!) rating of / refle!ts less than satisfa!tor) !apital that does not full)
support the !redit union4s !urrent and prospe!ti*e ris0 profile- $he rating indi!ates a
need for impro*ement-
A !apital ade5ua!) rating of B indi!ates defi!ient !apital- In light of the !redit union4s
!urrent and prospe!ti*e ris0 profile, *iabilit) of the !redit union ma) be threatened-
Finan!ial support from outsiders ma) be re5uired-
A rating of 7 indi!ates !riti!all) defi!ient !apital in light of the !redit union4s !urrent
and prospe!ti*e ris0 profile su!h that the !redit union4s *iabilit) is threatened-
Immediate assistan!e from e1ternal sour!es or finan!ial support is re5uired-
A""E+ 0$!I+1
$he asset 5ualit) rating refle!ts the 5uantit) of e1isting and potential !redit ris0
asso!iated with the loan and in*estment portfolios, other real estate owned 2,R',3,
and other assets, as well as off9balan!e sheet transa!tions- $he abilit) of management
to identif), measure, monitor, and !ontrol !redit ris0 is also refle!ted here- $he
e*aluation of asset 5ualit) should !onsider the ade5ua!) of the allowan!e for loan and
lease losses and weigh the e1posure to !ounterpart) issuer or borrower default under
a!tual or implied !ontra!tual agreements- All other ris0s that ma) affe!t the *alue or
mar0etabilit) of a !redit union4s assets, in!luding but not limited to the se*en ris0
!ategories, should be !onsidered-
R+IN/"
A rating of 1 indi!ates sound asset 5ualit) and !redit administration pra!ti!es-
Identified wea0nesses are minor in nature and ris0 e1posure is modest in relation to
!apital ade5ua!) and management4s abilities- Asset 5ualit) is of minimal super*isor)
!on!ern-
A rating of 2 indi!ates satisfa!tor) asset 5ualit) and !redit administration pra!ti!es-
$he le*el and se*erit) of !lassifi!ations and other wea0nesses warrant a limited le*el
of super*isor) attention- Ris0 e1posure is !ommensurate with !apital ade5ua!) and
management4s abilities-
A rating of / is assigned when asset 5ualit) or !redit administration pra!ti!es are less
than satisfa!tor)- $rends ma) be stable or indi!ate deterioration in asset 5ualit) or an
in!rease in ris0 e1posure- $he le*el and se*erit) of !lassified assets, other
wea0nesses, and ris0 re5uire an ele*ated le*el of super*isor) !on!ern- $here is
generall) a need to impro*e !redit administration and ris0 management pra!ti!es-
A rating of B is assigned to !redit unions with defi!ient asset 5ualit) or !redit
administration pra!ti!es- $he le*els of ris0 and problem assets are signifi!ant,
inade5uatel) !ontrolled, and sub6e!t the !redit union to potential losses that, if left
un!he!0ed, ma) threaten the !redit union4s *iabilit)-
A rating of 7 represents !riti!all) defi!ient asset 5ualit) or !redit administration
pra!ti!es that present an imminent threat to the !redit union4s *iabilit)-
MN/E#EN+
$he !apabilities of the board of dire!tors and management, in their respe!ti*e roles, to
identif), measure, monitor, and !ontrol the ris0s of a !redit union4s a!ti*ities and to
ensure a !redit union4s safe, sound, and effi!ient operation in !omplian!e with
appli!able laws and regulations is refle!ted in this rating- Cenerall), dire!tors need
not be a!ti*el) in*ol*ed in da)9to9da) operationsD howe*er, the) pro*ide !lear
guidan!e establishing a!!eptable ris0 e1posure le*els thru appropriate poli!ies,
pro!edures, and pra!ti!es- (enior management is responsible for de*eloping and
implementing poli!ies, pro!edures, and pra!ti!es that translate the board4s goals,
ob6e!ti*es, and ris0 limits into prudent operating standards-
Management pra!ti!es need to address the se*en ris0 !ategories and other ris0s
!ommensurate with the nature and s!ope of a !redit union4s a!ti*ities- (ound
management pra!ti!es are demonstrated b) a!ti*e o*ersight b) the board of dire!tors
and managementD !ompetent personnelD ade5uate poli!ies, pro!esses, and !ontrols
ta0ing into !onsideration the siAe and sophisti!ation of the !redit unionD maintenan!e
of an appropriate audit program and internal !ontrol en*ironmentD and effe!ti*e ris0
monitoring and management information s)stems- $his rating should refle!t the
board4s and management4s abilit) as it applies to all aspe!ts of the !redit union4s
operations as well as other finan!ial ser*i!e a!ti*ities in whi!h the !redit union is
in*ol*ed-
R+IN/"
A rating of 1 indi!ates sound performan!e b) management and the board of dire!tors
and sound ris0 management pra!ti!es relati*e to the !redit union4s siAe !omple1it),
and ris0 profile- All signifi!ant ris0s are !onsistentl) and effe!ti*el) identified,
measured, monitored, and !ontrolled- Management and the board ha*e demonstrated
the abilit) to promptl) and su!!essfull) address e1isting and potential problems and
ris0s-
A rating of 2 indi!ates satisfa!tor) management and board pra!ti!es relati*e to the
!redit union4s siAe, !omple1it), and ris0 profile- In general, signifi!ant ris0s are
effe!ti*el) identified, measured, monitored, and !ontrolled- Management and the
board ha*e demonstrated the abilit) to promptl) and su!!essfull) address e1isting and
potential problems and ris0s- Minor wea0nesses ma) e1ist but are not material-
A rating of / indi!ates management and board performan!e that needs impro*ement
or ris0 management pra!ti!es that are less than satisfa!tor) gi*en the nature of the
!redit union4s a!ti*ities- &roblems and signifi!ant ris0s ma) be inade5uatel)
identified, measured, monitored, and !ontrolled- $he !apabilities of management or
the board of dire!tors ma) be insuffi!ient for the t)pe, siAe, or !ondition of the
institution-
A rating of B indi!ates defi!ient management and board performan!e or ris0
management pra!ti!es that are inade5uate !onsidering the nature of a !redit union4s
a!ti*ities- $he le*el of problems and ris0 e1posure is e1!essi*e- &roblems and
signifi!ant ris0s are inade5uatel) identified, measured, monitored, or !ontrolled and
re5uire immediate a!tion b) the board and management to preser*e the soundness of
the institution- Repla!ing or strengthening the board ma) be ne!essar)-
A rating of 7 indi!ates !riti!all) defi!ient management and board performan!e or ris0
management pra!ti!es- Management and the board of dire!tors ha*e not demonstrated
the abilit) to !orre!t problems and implement appropriate ris0 management pra!ti!es-
&roblems and signifi!ant ris0s are inade5uatel) measured, monitored, or !ontrolled
and now threaten the !ontinued *iabilit) of the institution- Repla!ing or strengthening
management or the board of dire!tors is ne!essar)-
ERNIN/"
$his rating refle!ts the ade5ua!) of !urrent and future earnings to fund !apital
!ommensurate with the !redit union4s !urrent and prospe!ti*e finan!ial and
operational ris0 e1posure, potential !hanges in e!onomi! !limate, and strategi! plans-
'arnings !an be affe!ted b) e1!essi*e or inade5uatel) managed !redit ris0 that ma)
result in loan losses and re5uire additions to the allowan!e for loan and lease losses,
or b) mar0et ris0 that ma) undul) e1pose a !redit union4s earnings to *olatilit) in
interest rates- $he 5ualit) of earnings ma) also be diminished b) undue relian!e on
e1traordinar) gains or nonre!urring e*ents- Future earnings ma) be ad*ersel) affe!ted
b) an inabilit) to fore!ast or !ontrol funding and operating e1penses, improperl)
e1e!uted or ill9ad*ised business strategies, or poorl) managed or un!ontrolled
e1posure to other ris0s-
R+IN/"
A rating of 1 indi!ates earnings that are sound- Ade5uate !apital and allowan!e le*els
alread) e1ist after !onsideration is gi*en to asset 5ualit), growth, and ris0 fa!tors-
A rating of 2 indi!ates earnings that are satisfa!tor)- 'arnings are suffi!ient to rea!h
ade5uate !apital and allowan!e le*els after !onsideration is gi*en to asset 5ualit),
growth, and ris0 fa!tors-
A rating of / indi!ates earnings that need to be impro*ed- 'arnings ma) not full)
support !urrent and future !apital and allowan!e funding !ommensurate with the
!redit union4s o*erall !ondition, growth, and ris0 fa!tors-
A rating of B indi!ates earnings that are defi!ient- 'arnings are insuffi!ient to support
!urrent and future !apital and allowan!e funding !ommensurate with the !redit
union4s o*erall !ondition, growth, and ris0 fa!tors-
A rating of 7 indi!ates earnings that are !riti!all) defi!ient and represent a distin!t
threat to the !redit union4s *iabilit)- 'arnings do not support !urrent and future !apital
and allowan!e funding !ommensurate with the !redit o*erall !ondition, growth, and
ris0 fa!tors-
LI0$IDI+1 %ND ""E+2!I.I!I+1 #N/E#EN+&
!i3uidity
In e*aluating the ade5ua!) of the !redit union4s li5uidit) position, !onsideration
should be gi*en to the !urrent and prospe!ti*e sour!es of li5uidit) !ompared to
funding needs- Consideration is also gi*en to the ade5ua!) of asset9liabilit)
management 2A%M3 pra!ti!es relati*e to the !redit union4s siAe, !omple1it), and ris0
profile- In general, A%M management pra!ti!es should ensure the !redit union is able
to maintain li5uidit) suffi!ient to meet finan!ial obligations in a timel) manner and
meet member share and loan demands- &ra!ti!es should refle!t the abilit) of the !redit
union to manage unplanned !hanges in funding sour!es as well as rea!t to !hanges in
mar0et !onditions that affe!t the abilit) to 5ui!0l) li5uidate assets with minimal loss-
In addition, A%M pra!ti!es should ensure li5uidit) is not maintained at high !ost or
through undue relian!e on funding sour!es that ma) not be a*ailable in times of
finan!ial stress or ad*erse !hanges in mar0et !onditions-
$he li5uidit) management s)stem should be !ommensurate with the !omple1it) of the
balan!e sheet and ade5ua!) of !apital- $his in!ludes e*aluating the me!hanisms in
pla!e to monitor and !ontrol ris0, management4s response when ris0 e1posure
approa!hes or e1!eeds the !redit union4s ris0 limits, and !orre!ti*e a!tion ta0en when
ne!essar)-
sset2!iability #ana)ement
Asset9liabilit) Management 2A%M3 is the pro!ess of e*aluating, monitoring, and
!ontrolling !hanges in the !redit union4s mar0et and balan!e sheet ris0- $hese ris0s
!an ad*ersel) affe!t earnings and !apital ade5ua!)- +hen e*aluating A%M,
!onsideration should be gi*en to management4s abilit) to identif), measure, monitor,
and !ontrol ris0, the !redit union4s siAe, the nature and !omple1it) of its a!ti*ities, and
the ade5ua!) of !apital and earnings in relation to its le*el of mar0et ris0 e1posure-
$he primar) sour!e of mar0et ris0 arises from sensiti*it) to !hanges in interest rates-
$his rating will refle!t the o*erall ade5ua!) of established poli!ies, limits, and the
effe!ti*eness of ris0 optimiAation strategies- $hese poli!ies should outline indi*idual
responsibilities, the !redit union4s ris0 toleran!e, and ensure timel) monitoring and
reporting to the de!ision ma0ers-
R+IN/"
A rating of 1 indi!ates li5uidit) and A%M pra!ti!es are sound- $here is minimal
potential that the !apital ade5ua!) will be materiall) affe!ted b) internal and e1ternal
fa!tors su!h as a shift in interest rates- %i5uidit) and A%M are sound for the siAe,
sophisti!ation, and ris0 ta0en b) the !redit union- $he degree of mar0et ris0 ta0en b)
the !redit union is supported- $he !redit union has reliable a!!ess to suffi!ient sour!es
of funds on fa*orable terms to meet present and anti!ipated li5uidit) needs-
A rating of 2 indi!ates satisfa!tor) li5uidit) and A%M pra!ti!es- $he !redit union has
a!!ess to suffi!ient sour!es of funds on a!!eptable terms to meet present and
anti!ipated li5uidit) needs- Modest wea0nesses ma) be e*ident in A%M- Mar0et rate
sensiti*it) is ade5uatel) !ontrolled and there is onl) moderate potential that the
ade5ua!) of !apital will be materiall) affe!ted b) internal and e1ternal fa!tors su!h as
a shift in interest rates- A%M pra!ti!es are satisfa!tor) for the siAe, sophisti!ation, and
mar0et ris0 a!!epted b) the !redit union- $he degree of mar0et ris0 ta0en b) the !redit
union is supported-
A rating of / indi!ates li5uidit) and@or A%M pra!ti!es in need of impro*ement- Credit
unions rated a / ma) la!0 read) a!!ess to funds on reasonable terms or ma) e*iden!e
signifi!ant wea0nesses in A%M pra!ti!es- Control of mar0et ris0 needs impro*ement
or there is signifi!ant potential the ade5ua!) of !apital will be materiall) affe!ted b)
internal and e1ternal fa!tors su!h as a shift in interest rates- Ris0 management
pra!ti!es need to be impro*ed gi*en the siAe, sophisti!ation, and le*el of mar0et ris0
a!!epted b) the !redit union- $he degree of mar0et ris0 ta0en b) the !redit union is
not ade5uatel) supported-
A rating of B indi!ates defi!ient li5uidit) and@or inade5uate A%M pra!ti!es- Credit
unions rated a B ma) not ha*e or be able to obtain a suffi!ient *olume of funds on
reasonable terms to meet li5uidit) needs- $he !ontrol of mar0et ris0 is una!!eptable or
there is high potential the ade5ua!) of !apital will be materiall) affe!ted b) internal
and e1ternal fa!tors su!h as a shift in interest rates- A%M pra!ti!es are defi!ient for
the siAe, sophisti!ation, and le*el of mar0et ris0 a!!epted b) the !redit union- $he
degree of mar0et ris0 ta0en b) the !redit union is not supported-
A rating of 7 indi!ates li5uidit) and@or A%M pra!ti!es so !riti!all) defi!ient that the
!ontinued *iabilit) of the !redit union is threatened- Credit unions rated 7 re5uire
immediate e1ternal finan!ial assistan!e to meet maturing obligations or other li5uidit)
needs- Mar0et ris0 sensiti*it) is una!!eptable or the le*el of the ris0 ta0en is an
imminent threat to the !redit union4s *iabilit)- A%M pra!ti!es are inade5uate for the
siAe, sophisti!ation, and le*el of mar0et ris0 a!!epted b) the !redit union-
C#E! C-#P-"I+E R+IN/"
Ratin) 4 9 Credit unions in this group are sound in e*er) respe!t and generall) ha*e
!omponents rated 1 and 2- An) wea0nesses are minor and !an be handled in a routine
manner b) the board of dire!tors and management- $hese !redit unions are the most
!apable of withstanding unpredi!table business !onditions and are resistant to outside
influen!es su!h as e!onomi! instabilit) in their trade area- $hese !redit unions are in
substantial !omplian!e with laws and regulations- As a result, the) e1hibit sound
performan!e and ris0 management pra!ti!es relati*e to the !redit union4s siAe,
!omple1it), and ris0 profile, and gi*e no !ause for super*isor) !on!ern-
Ratin) 5 E Credit unions in this group are fundamentall) sound- For a !redit union to
re!ei*e this rating, generall) no !omponent rating should be more se*ere than a /-
,nl) moderate wea0nesses are present and are well within the board of dire!tors4 and
management4s !apabilities and willingness to !orre!t- $hese !redit unions are stable
and are !apable of withstanding business flu!tuations- $hese !redit unions are in
substantial !omplian!e with laws and regulations- ,*erall ris0 management pra!ti!es
are satisfa!tor) relati*e to the !redit union4s siAe, !omple1it), and ris0 profile- $here
are no material super*isor) !on!erns and, as a result, the super*isor) response is
informal and limited-
Ratin) 6 9 Credit unions in this group e1hibit some degree of super*isor) !on!ern in
one or more of the !omponent areas- $hese !redit unions e1hibit a !ombination of
wea0nesses that ma) range from moderate to se*ereD howe*er, the magnitude of the
defi!ien!ies generall) will not !ause a !omponent to be rated more se*erel) than B-
Management ma) la!0 the abilit) or willingness to effe!ti*el) address wea0nesses
within appropriate time frames- Credit unions in this group generall) are less !apable
of withstanding business flu!tuations and are more *ulnerable to outside influen!es
than those rated a !omposite 1 or 2- Additionall), these !redit unions ma) be in
signifi!ant non!omplian!e with laws and regulations- Ris0 management pra!ti!es ma)
be less than satisfa!tor) relati*e to the !redit union4s siAe, !omple1it), and ris0
profile- $hese !redit unions re5uire more than normal super*ision whi!h ma) in!lude
enfor!ement a!tions- Failure appears unli0el), howe*er, gi*en o*erall strength and
finan!ial !apa!it) of these !redit unions-
Ratin) 7 9 Credit unions in this group generall) e1hibit unsafe and unsound pra!ti!es
or !onditions- $here are serious finan!ial or managerial defi!ien!ies that result in
unsatisfa!tor) performan!e- $he problems range from se*ere to !riti!all) defi!ient-
$he wea0nesses and problems are not being satisfa!toril) addressed or resol*ed b)
the board of dire!tors and management- Credit unions in this group generall) are not
!apable of withstanding business flu!tuations- $here ma) be signifi!ant
non!omplian!e with laws and regulations- Ris0 management pra!ti!es are generall)
una!!eptable relati*e to the !redit union4s siAe, !omple1it), and ris0 profile- Close
super*isor) attention is re5uired, whi!h means, in most !ases, enfor!ement a!tion is
ne!essar) to address the problems- Credit unions in the group pose a ris0 to the
National Credit nion (hare Insuran!e Fund 2NC(IF3- Failure is a distin!t
possibilit) if the problems and wea0nesses are not satisfa!toril) addressed and
resol*ed-
Ratin) 8 E Credit unions in this group e1hibit e1tremel) unsafe and unsound
pra!ti!es and !onditionsD e1hibit a !riti!all) defi!ient performan!eD often !ontain
inade5uate ris0 management pra!ti!es relati*e to the !redit union4s siAe, !omple1it),
and ris0 profileD and are of the greatest super*isor) !on!ern- $he *olume and se*erit)
of problems are be)ond management>s abilit) or willingness to !ontrol or !orre!t-
Immediate outside finan!ial or other assistan!e is needed in order for the !redit union
to be *iable- ,ngoing super*isor) attention is ne!essar)- Credit unions in this group
pose a signifi!ant ris0 to the NC(IF and failure is highl) probable-