No Joy Quite Yet In CU-Ville As Consumer Deleveraging Continues

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MADISON, Wis. — Forget Whoville — the Grinch will continue to be felt in CUville.

CUNA Mutual Group Chief Economist Dave Colby said the economy is teetering, much like the Grinch's dog Max in the holiday TV classic. "Max is getting pulled from the edge but he's still standing on the edge. We are not yet racing downhill to recovery in Whoville."

What's slowing recovery are consumers continuing to deleverage, which will keep borrowing tight, stated Colby, who projected 2% to 3% CU loan growth this year. "I am seeing a lumpy L-type of recovery for the economy with things slowly getting back into place, but with a whole flock of black swans sitting out there."

What concerns Colby is that 2011 will be first year in the last two without major economic stimulus programs, which could also drive a second wave of unemployment from state and local governments that face serious budget issues. "Another black swan is Euro zone default risk, as very few corrections were instituted," Colby added.

Managing Key Ratios

The year will be one of managed growth for credit unions predicted Colby. "Through deposit pricing credit unions will manage key ratios. We will not have member demand for short-term credit. And if members are not borrowing, how aggressive do you have to be in attracting deposits?" asked Colby, who believes credit unions will manage deposit growth down to 3.5% to 4%.

ROA will climb a bit, forecasted Colby, with the biggest plus coming from fewer loan write-offs and credit unions continuing to be aggressive with expense control. "We may see more deferral of expansion plans and a greater focus on right-sizing the employee base. I think we will continue to see tough decisions being made."

Colby believes credit unions will manage marketing dollars to put them where they need to go, less in the area of new membership drives and more toward refinance campaigns to give CUs a greater share of their members' loan business.

Colby stressed that greater collaboration needs to occur to manage expenses during a time when credit unions are facing growing revenue challenges. "I am hoping for more collaboration but I am not holding my breath. I think the large credit unions are off on their own tying to maximize their value to members and their own efficiencies. Plus it's hard for small credit unions to quickly come to agreement on collaboration, going to single systems and unified back-office functions."

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