CUNA Initiative Aims To Boost Performance As Rates Rise

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CUNA said it has rolled out a new educational initiative designed to help credit unions succeed in a rising rate environment by coordinating national and state training, research, and publishing resources on strategies that strengthen credit union bottom lines.

Called "Project LEAP: Showcasing Lending Excellence and Performance," it was formed by CUNA with support from CUNA Mutual Group and the American Association of Credit Union Leagues (AACUL). It is to serve as a link to products and services offered through CUNA and the state leagues that help credit unions to address overall growth strategies, reshape their asset/liability portfolios, boost non-interest revenue, build membership, grow consumer loan portfolios, and invest in developing a sales and service culture that better markets and cross-sells products and services, CUNA said.

"Even with a capital-to-asset ratio of almost 11% at year-end 2004, credit unions' return-on-assets (ROA) averaged 95 basis points-a drop from 98 year-end 2003," CUNA said in announcing the service. "CUNA economists project that the average ROA could drop to 85 basis points this year, and 80 basis points in 2006. More than 3,500 credit unions have an ROA of less than 40 basis points, and more than 1,400 have a negative ROA."

CUNA noted that credit union share portfolios are heavily weighted in favor of short-term, low-cost deposits that will re-price quickly as rates rise. "Loan portfolios, on the other hand, re-price more slowly and are heavily weighted towards long-term loans that yield lower rates of return," the trade group said. "To provide relief from problems associated with a declining interest margin, credit unions have a variety of time-tested strategies they can pursue."

According to CUNA, those strategies include:

* Drill deeper into the smaller loan needs of deserving members, and implement an aggressive marketing and training effort to make more unsecured debt that might otherwise be financed by high-interest credit cards or predatory lenders.

* Implement a risk-based lending program to make more loans and earn a higher yield.

* Adopt a rate-change model that quickly reacts to Federal Reserve rate changes as well as rate changes made by competitors.

* Create a lending incentive program that rewards staff for making "second" loans to members applying for a loan.

* Maximize non-interest revenue opportunities by selling loan-related ancillaries such as credit insurance, or other products and services that provide fee income and are a low-cost source of funds such as share drafts.

CUJ Resources

For more info, go to www.cuna.org and click on the link to Project Leap, located under the "CUNA Initiatives" banner or e-mail elearning cuna.com.

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