SCOTTSDALE, Ariz.-This year credit unions should take their foot off the brakes, open up the marketing purse strings, and heavily promote lending.
That's the consensus of a number of analysts who spoke with Credit Union Journal as part of this special issue focused on growth strategies. Those analysts said more aggressive marketing and underwriting practices are needed to take advantage of a big loan growth opportunity that won't be around much longer than 2010. They insisted that a lending push is necessary not only to boost membership and much-needed ROA, but it's also one of the best means to retain business won from banks during 2009.
"I have been in this business for over 30 years, and I have seen the pendulum swing from credit unions being overly conservative to overly liberal in their underwriting," said Mike Kohl, CEO of Kohl Advisory Group here. "Sometimes they have one foot on the gas and the other on the brakes. I caution credit unions that they are in the risk management, not risk elimination, business. And the time to make hay is when the sun shines, and I think that is now."
Fuel for the Balance Sheet
Kohl asserted that loans are the "fuel" to profitably grow the balance sheet. But that starts with understanding which loan products are making money and which ones are not, and leveraging those that are most profitable, Kohl said. For example, Kohl said if car loans are the CU's strength now is a good time to go after refinances on deals members have picked up at the end of the year from manufacturers. "Many members have taken a cash rebate and accepted the regular finance rate from the dealer," Kohl said. "That's a big opportunity to go after those members with a better rate."
The entire loan strategy, Kohl emphasized, keys off of understanding what's driving the bottom line. "Which loans are your best contributors in terms of ROA," he said. "If your loan-to-asset ratio can be pushed up a little bit, then it makes sense to spend a little more money really aggressively getting those loans on the books."
Bill Garcia, president and CEO of the San Jose, Calif.-based Solutions in Finance, believes many credit unions are passing over loan growth because they have tightened up credit guidelines. "Because of the economy, credit union focus in 2009 was on the budget. They got so focused on budget that they lost sight of the fact that it takes money to make money," he said. "They have cut back so far they can't grow. They need to get out of this budget mode and start to strategize on how they can grow."
Indirect auto lending is one way, insisted Garcia, who contended that too many CUs have backed out of dealer paper because they "got burned. But many got burned because they were not handling this business correctly. A lot were not doing quality control, not verifying all of the documentation before they funded the loan. They should get back in, and do proper quality control."
More recently, he said, part of the problem has been that credit unions only want to do dealer loans on A paper. "You want to have good controls and good credit guidelines. Don't go crazy, don't buy paper too deep. But you have to buy a little deep to help the dealer out every now and then."
Bob Larson, financial support consultant at CUNA Mutual Group agreed that the opportunity is with car loans, due to the fact that a rising rate environment is on the horizon and too many mortgage loans booked this year could present balance sheet risk. He also touted the advantages of indirect auto lending, citing the importance of making sure dealers understand what paper the credit union is willing to buy. "We need to hold the dealer accountable and make sure they understand what we want from them," Larson said.
In today's economy, Larson said any indirect program should employ a tracking system to understand the quality of loans being originated from each dealership and CU loan officer.
Lending growth will also come from more effective use of online channels, according to Sara Brooks, Fiserv chief strategy officer, credit union solutions. Brooks emphasized that will mean much more than just an easy-to-use online loan application, it's the entire experience members receive when they visit the credit union's website.
The Need for Ease
"You need to make your institution easy to interact with online," Brooks said. "People use the web to shop for information, and only if they become comfortable with a site will they proceed to action."
If the initial shopping experience is not good, and if the person has trouble finding information or tools the financial offers, Brooks said people just "move on to the next site."
To drive lending activity this year, Brooks insisted that a strong marketing campaign is necessary along with good CRM and data mining tools. "When these things are in place we really see lending take off at our clients," she said.
