Loan performance is under pressure. Credit card delinquencies are at their highest levels since the Great Recession. Used vehicle loan charge-offs are breaking records.

And while credit unions have managed these risks before, the NCUA’s 2025 Supervisory Priorities make it clear:

Examiners are paying close attention to credit risk.

That means reviewing underwriting standards, portfolio concentrations, and exposure management on higher-risk loans. Read on to see how loan participations reduce risk without slamming the brakes on lending.

A Risk Management Strategy for Growth

Loan participations allow credit unions to diversify their loan portfolios, offload riskier assets, and maintain a healthy balance of credit exposure. By selling a portion of certain loans, credit unions can free up capital, reduce concentration risk, and improve overall portfolio quality.

For example, if a credit union sees a growing percentage of its assets tied up in used auto loans—one of the riskiest segments today—it can sell a portion of those loans through a participation. This helps spread exposure across multiple institutions instead of holding all the risk alone.

On the flip side, a credit union with strong underwriting practices and capital to deploy can strategically purchase participations in well-structured loans. This enables growth without the need to fully originate new loans, limiting exposure to high-risk segments.

Catch up on loan participation basics here.

Credit Risk and Examinations

The NCUA isn’t just looking at delinquency rates—it’s also evaluating how credit unions prepare for credit risk cycles. That includes reviewing:

• Concentration risk: Are certain loan types making up too much of the portfolio?
• Underwriting discipline: Are loans being made with appropriate risk controls?
• Allowance for Credit Losses (ACL) reserves: Is there sufficient coverage for potential losses?
• Collection strategies: Are credit unions engaging in fair and effective loss mitigation?

Loan participations help credit unions proactively rebalance their portfolios, limit exposure to struggling sectors, and align with examiner expectations.

Rather than waiting for delinquencies to rise further, credit unions can use participations to adjust credit risk before problems escalate.

A Smarter Way to Navigate 2025

There’s enough risk to go around in 2025 that avoiding it is only part of the battle. The next step is managing it while continuing to support members.

Loan participations are an easy way to do that. They mitigate credit risk, generate interest income, and keep your balance sheet happy (almost) no matter what comes.

As NCUA scrutiny on credit risk intensifies, credit unions with a clear strategy for diversification and portfolio management will be best positioned to succeed. Loan participations won’t eliminate risk, but they can help credit unions control it without limiting growth.

Learn more about loan participations here: https://cu-2.com/loan-participations/