Interest Rate Risk and Net Long-Term Asset Ratio

One financial measure that is probably giving the National Credit Union Administration heartburn has been the continued increase in net long-term assets relative to total assets.

The net long-term assets to total assets ratio is a simple measure of interest rate risk exposure at credit unions. Currently, credit unions have limited options in managing interest rate risk. So, the higher the ratio, the greater the level of interest rate risk.

At the end of the first quarter of 2013, the net long-term assets to total assets ratio was 33.48 percent. This is 321 basis points higher than the 10-year average and up 57 basis points from the end of 2012. In comparison, the net long-term asset ratio was approximately 25 percent in 2004.

In general, larger credit unions tend to have higher net long-term assets to total assets ratio than smaller credit unions.

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