PETERBOROUGH, N.H.-Headlines tell the story of banks' mounting credit card portfolio losses. Are credit unions next?
Credit union card portfolios, while in respectable shape today, could begin to see greater charge-offs in 2009 as ongoing job cuts extend credit problems beyond states mired in the subprime crisis, industry analysts suggest.
Some say problems could result as credit unions aggressively seek to gain card share as banks pull back. A bank pullback in marketing plastic could be a significant growth opportunity for credit unions, analysts note, but are quick to add that CUs must also further refine methods to offer cards and target line extensions to manage risk, down to individual members, and update and add more risk-assessment tools, such as bankruptcy predictor indexes (see related story). Simply relying on strong member relationships to spot financial behavior changes can mitigate losses, as well, Credit Union Journal was told.
'No One Is Immune'
Tim Kolk, managing partner at Brookwood Capital here, shared that the credit card consulting firm is "seeing troubled credit union portfolios in every state. We noticed a significant localized uptick back in late 2006 and early 2007. Starting in second and third quarter of 2008, we began to see a lot of delinquency levels come up across all regions. Now that we are in 2009, no one is immune. It's just a matter of degree."
The risk "opportunity" credit unions must avoid, stressed Kolk, is becoming the "lender of last resort for people heading for trouble. That's a bad place to be."
Credit unions may be able to avoid that moniker by relying on risk-assessment skills the big banks don't have, pointed out Kolk. "Credit unions have a lot of relationship information. We suggest they look at member demographics and behavior. Look at the life of the membership, delinquency behavior on any loan product, or change of behavior in members' card use-for example, going from transaction to a revolver type of behavior. It's blocking and tackling every day."
Jeff Russell, CIO and VP of strategic development for The Members Group in Des Moines, Iowa, believes that problems in credit union card portfolios remain "geographically disproportionate. The question is whether the whole country normalizes and this trickles into places like the Midwest and South, areas that have not been hit as hard by the economy. If credit unions get ahead of that, they will be in a better position than if they wait until problems really start to happen."
While being on the front end and managing risk can limit charge-offs, the strategy is just as important when growing portfolios, reminded Russell, who advises borrowing a strategy from the mortgage department and doing workout loans with plastic cards, as well.
Work With Members
"Identify members who have gone delinquent and work with them proactively to set some sort of payment plan," said Russell. "That provides you with better exposure to potential charge-offs, and you can gain a great deal of long-term loyalty by helping those who are experiencing a downturn in their financial lives."
When adjusting credit lines, Russell urged CUs to increase sophistication with "ongoing underwriting. And they have to closely look at utilization. Where are my cardholders in relation to where their credit lines are? It's a balancing act. You want to provide enough credit limit so the people who have the ability to use the card do so, and you want to make sure your exposure is such that it is in line with the credit history and the capacity of the borrower to repay."
MORE@CUJOURNAL.COM
Read more about how the economy is changing the credit and debit card business and how CUs are responding to those changes at cujournal.com and typing the following terms into the search function:
What To Do When Card Volume Isn't As 'Joyful' As Usual
For info on this story:
* www.pscufs.com
* www.tnbcard.com
* www.themembersgroup.com
* www.brookwoodcapital.net
