The Novel Coronavirus (COVID-19) has enforced the necessity for financial institutions such as Credit Unions (CUs) to conduct an assessment of the impact that this pandemic has on its operations and its ability to react positively to ensure the viability of the credit union. It is recommended that the following considerations, where applicable, be taken into account:
Liquidity Impact Assessment
- Each affiliate should immediately examine its portfolio to ascertain the impact a loan moratorium would present on the cash flow; for example, contemplate a 3-month moratorium (NB: projections should be made for a 6-month moratorium). Ascertain the stress point given moratorium extensions
- Create various scenarios should other channels of liquidity be impacted, for example: Run on deposits.
Sector Exposure Assessment
- Assess exposure of loan portfolio to economic sectors
- Identify high risk loans for small to medium businesses and those members in key industries (tourism, agriculture, construction etc.) impacted by the virus
Projections for Non-Performing Loans (NPLs)
- Conduct scenarios outlining the impact of an increase in NPLs in the short medium and long terms.
- Measure the impact on capital adequacy due to increase in NPLs in the short, medium and long term.
- Examine the impact on various regulatory standards
- Suggest regulatory provisions that could reduce risk exposure
IFRS 9 Impact
- Identify and state standards that will be impacted
Credit Bureau Impact
- Ascertain the effects on credit scoring
- Provide proposals on how credit scoring could be tailored during this crisis period
Key considerations for each affiliate
- Revision of budget
- Ensure open communication with members
- Ensure that emergency liquidity channels are easily identifiable.