SAN DIMAS - Spikes in commodity prices, rising consumer debt, and little or no wage growth have WesCorp predicting a tougher economy in the second half of 2008. And while the corporate CU here is cautioning that market conditions will challenge balance sheets, it also foresees opportunity for lending growth.
“The successes we’re seeing are from credit unions in the kinds of environments where the big bank competition has pulled back in lending and has slower response times,” said Dwight Johnston, WesCorp VP of economics and research.
In markets hit hard by subprime lending, it’s no surprise CUs are seeing a “huge” increase in refinancing, Johnston said. “Despite credit unions’ willingness to help, they still have to be very careful about whether members can afford the loan–take a hard look at their job.”
That might mean a little more time in processing for the member, but still better than at banks, and the online lenders are disappearing, offered Johnston.
“The online lending is over now,” he told Credit Union Journal. “And when consumers walk into their banks they may get a friendly greeting, but their loan process is simply not going to be as easy and consumer friendly as at the credit union...Credit unions also have a lot of capacity on their books to hold mortgages, so they can be very competitive on rates to the extent that they want to portfolio mortgages.”
Whether a CU chooses to be aggressive with lending or not can depend on the local economy, which Johnston acknowledged often varies by state, pointing to tough conditions in California and Florida and a solid economy in Texas.
“It comes down to each credit union doing its homework,” Johnston suggested. “They do need to approach lending with a fair degree of caution as they usually do, taking a critical look at what their membership really looks like. Are they in industries that are at risk?”
From a balance sheet perspective, WesCorp is urging credit unions to make sure they have “the right kind of asset/liability system and analyze their balance sheets, especially credit unions that are beginning to portfolio mortgages to a larger degree.
“Obviously they have to be concerned about credit risk, but they have to be really concerned about what they are doing to their interest-rate risk,” Johnston continued. “With rates as low as they are, we are encouraging credit unions that are booking a lot of longer-term assets through mortgage loans and business lending to look at ways either through interest rate swaps or through longer-term borrowing to lock in some spreads on those longer-term assets.”
For more info: www.wescorp.org
