LOMBARD, Ill. - A slumping economy will eventually recover, perhaps even in the second half of this year, but pressures on margins will continue in 2008 or 2009 and beyond for that matter, according to one analyst.
“We all feel the pain from the recession and what’s going on in the real estate market,” pointed out Bill Handel, VP of product development for Raddon Financial. “But the larger issue we see for credit unions, from a longer-term perspective, is that the business model has changed. Margin compression will continue, and that’s not due to the economic conditions now.”
Handel reminded that margin compression has been taking place for the last 10 years, and the slowdown in mortgage and auto lending has placed a spotlight on shrinking spreads.
“The compression really hasn’t been felt in terms of earnings impact,” Handel suggested, “because at the same time we’ve seen dramatic growth in real estate lending and non-interest income. Our concern for the industry is that the non-interest income will not continue to grow at its current pace. Our research indicates that those numbers will either stabilize or drop.”
Handel recommends that, moving forward, credit unions should focus on being “better at product management and understand the interplay between rate, convenience, and service quality. The industry has always been one very willing to compete on price and put out some very aggressive rates.
But I think credit unions have to figure out how to do a better job of generating core funding to manage spreads better.”
To help CUs gain greater wallet share to drive core funding, Raddon offers its Integrator MCIF solution. “It’s a very robust system because we tie it all back into the financials of the organization and really try to use MCIF as a research tool for credit unions to manage their member relationships.”
For more info: www.raddon.com
