By David Etter, Wipfli
Credit unions are facing increased regulatory scrutiny over their commercial real estate (CRE) loan portfolios. Regulators are emphasizing the importance of exposure and concentration risk management, reflecting concerns about the financial impact of excessive risk in CRE lending.
The National Credit Union Administration (NCUA) recently reaffirmed its stance on concentration risk, encouraging credit unions to evaluate their balance sheets and strategic plans for risk exposure.
In a November 14, 2025, guidance letter to credit unions, the NCUA chairman wrote: “I encourage credit union officials to understand the concentration risk in their credit union’s current balance sheet, as well as how strategic plans may affect the level of concentration risk; and to ensure their risk management practices are commensurate with the level of risk.”
Proper risk management practices are crucial to safeguard financial stability.
Key Risk Mitigation Strategies for Credit Unions
- Review and update CRE policies:
Credit unions should assess whether their current CRE concentration policies align with the evolving composition of their portfolios. Granular segmentation of CRE categories, such as subdividing non-owner-occupied office spaces into “Class A” and “Class B or lower” spaces, can offer deeper insights into risk exposure. A thorough review of collateral and accurate management information systems (MIS) is essential. - Monitor re-pricing risks:
Rising interest rates pose challenges for CRE loans with re-pricing structures. Evaluating your portfolio’s debt yield – a metric for cash flow leverage – can help identify vulnerabilities. Lower debt yields indicate higher risk, making this calculation a critical tool for assessing potential trouble spots. Debt yields that reflect higher rate levels can be used to establish stressed loan amounts that are less vulnerable to higher-rate environments. Debt yields also permit financial institution or examiners to use a common metric to quickly size a loan or assess its relative risk. - Stress testing for resilience:
Using normalized debt yield calculations can stress-test loan amounts against higher-rate environments, reducing exposure to market fluctuations. This approach aligns with the best practices outlined in regulatory guidance.
By proactively managing concentration and re-pricing risks, credit unions can reduce exposure and maintain their financial health amid volatility.
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David Etter is a director of risk advisory services at Wipfli, a top 25 advisory and accounting firm.
