COLORADO SPRINGS, Colo.-It may be a new year, but for credit unions it's going to mean an old focus in order to grow: make more loans.
But even those CUs that are successful at getting out loan dollars are still going to have to compete in a sustained low-rate environment that when coupled with compliance costs remains the biggest threat to the ability to generate net income, noted Bill Vogeney, EVP/chief lending officer at Ent FCU and a member of the executive committee on the CUNA Lending Council.
"I think the Fed has got this outdated view of 'Well, we'll spur consumer spending by saving the consumer all kinds of money on their high-priced 4.5% mortgages,'" he said. "Can you imagine 10 years ago if we'd termed a mortgage high-priced at 4%?"
In addition, Vogeney believes consumers will continue to shorten the life of their loans and deleverage faster, leaving CUs with the choice of either being stuck with a low-rate loan when interest rates rise or selling off the loan to avoid the risk.
"What's going to happen to your earning ability when rates rise back to normal levels? If rates went back to 4% or 4.25% for a 30-year fixed, it would kill the refinance market. You're not going to have that gain on sale, and most credit unions are poorly prepared to handle the mortgage volume with higher rates, because most of us are feasting on refi's and most credit unions haven't done a real good job of developing the purchase mortgage loan."
Vogeney also noted the ongoing pressures on non-interest income due to Dodd-Frank and the CFPB, while new entries into the market such as PayPal, Bluebird and Square are poised to cut into FIs' share of the payments space.
The 'Sales Business'
Those market conditions mean that in 2013 credit unions will have to get refocused on creating loans and going after every opportunity available to boost any kind of interest income.
At Ent FCU, "we've had solid consumer loan growth this year-we'll be pushing 10%-but we're going to have to squeak out 12% or 13% (in 2013) and that's going to be difficult because the consumer still isn't spending like they were," he said.
Vogeney stressed that credit unions must recognize that they're in the sales business and they can't wait for loans to come to them.
"I think the smaller credit unions are uniquely positioned because they know their members so well," he said. "The issue with a lot of those smaller credit unions is that they're afraid to 'sell' because they have such a good relationship with their members. ... They may be hesitant, but if you want the loan business you're going to have to fight for it."
