MADISON, Wis. - As loan growth slows in the coming years, mortgages and other loan products that are more insulated from economic downturn should be the focus of credit union lending, advises CUNA’s 2008/2009 Credit Union Environmental Scan (E-Scan).
The top insights, as identified by E-Scan analysts, are:
1. Economy – The economy will continue to present challenges for CUs as it recovers from a mild but longer-than-normal recession.
2. Housing – To address problems in the housing market, the government must adopt regulatory changes that protect borrowers and maintain a competitive industry, as well as bring back market discipline and transparency.
3. Lending – Credit union loan growth will slow to 5% in 2008 and 6% in 2009; loan delinquency rates will rise, especially in areas with the biggest housing price corrections. To ensure future loan growth, it’s essential that CUs do a better job of building relationships with Generations X and Y and look for opportunities in business, student and mortgage lending.
4. Earnings – Credit union ROA is expected to fall to 0.53% in 2008 as deteriorating credit quality and slower loan growth reduce earnings to the lowest level since 1980. Credit union capital-to-asset ratios are expected to decline from a record high in 2007. Most credit unions have built strong capital cushions over the past decade and should let that cushion protect their credit unions during this temporary decline in net income.
5. Membership growth – Membership growth was 1.7% in 2007, but if you factor out new members who enter fields of membership through the indirect lending channel, membership growth rates appear to be on the decline. More than half (53%) of credit union CEOs say superior service is their most successful strategy for attracting new members and improving the bottom line.
6. Competition – Credit unions are part of a mature industry whose numbers are shrinking as an aging business model constricts new growth opportunities. Large retail banks and other competitors have immense resources that are far beyond the reach of most credit unions unless they innovate and collaborate.
7. Collaboration–When surveyed informally, two-thirds of CEOs of large credit unions identified collaboration among credit unions as critical or very important.
8. Regulation – Although focusing on lending, credit unions’ analysis of all types of third-party vendors before contracting with them and during the life of the contract will be a high priority for NCUA examiners in 2008 and beyond.
9. Legislation – The Treasury Department’s plan to overhaul the financial regulatory system would call for the creation of a “prudential financial regulator” and a new type of charter that would consolidate the national bank, federal savings association, and federal credit union charters. Opposed to the plan, CUNA received assurances from House Financial 9. Services Committee Chairman Barney Frank (D-Mass.) that any proposal to do away with credit unions “will go nowhere.”
10. Technology – Financial institutions will increase their technology spending at a slower pace than previous years.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
