MADISON, Wis.-Rethinking some assumptions about lending can go a long way toward the bottom line, according to Dave Colby.
"I would not spend a lot of marketing time and effort on new vehicles because they will be hard to get, maybe some auto loan recapture, and as long as you can freshly underwrite the loan that's helping your balance sheet too," said CUNA Mutual Group's chief economist. "A freshly underwritten loan is cleaner collateral and is less likely to go delinquent."
When members complain about low CD rates, Colby suggests turning those interactions into lending opportunities. "Ask them if they have loans anywhere else. If they do, say you will rewrite them. Tell them you will use the same environment that is creaming their CD rates to lower their loan rates. You might pick up the rest of a mortgage, say $50,000, and they have 80% equity. Those members will not walk away from those loans. Even if you charged the person 3.75%, that is better than what you get in Treasuries and from the corporates."
Overall, it will take more aggressive lending behaviors, and just "hanging out a shingle" and waiting for loans to come in will not work. Colby was less optimistic regarding fee income, noting ome revenue can be generated through originating mortgages, but he doesn't see a great deal of growth there. "That leaves the expense side of the balance sheet," Colby concluded. "We will see little or no growth in staff until we figure out what we can do with them. You have to have the members-per-employee to grow significantly and gain some efficiency scale. Unless you have a business plan, for example, that says we will bring in a certain number of employees to be debt repair consultants and they will make 10% loans, you cannot afford to bring on new people."
CUs should guard against interest rate risk. "A prudent person would see all this stimulus and the creeping energy prices that no one is talking about and know that interest rates have to go up."
