WALNUT CREEK, Calif.-The bad news: problems with the economy won't just disappear. The good news: credit unions still have a few tricks up their sleeves, according to Steve Punch, CEO of Pacific Services Credit Union.
"In this environment, some things can be addressed, but other things we just have to live with," he said. "The old book of business is something a credit union has to live with until it is gone, but the new book is something we can change going forward."
When the economy goes bad, one of the first budget items to get cut is marketing, Punch noted. He believes CUs should be marketing to their best source for new members: existing members. He said 70% of Pacific Service CU's new members come from referrals by its current members.
"Be careful budget cuts do not hurt morale and motivation on the staff," he advised. "Communication is important. Hiring freezes and cutting back on bonuses are expected, but salary freezes and layoffs cause panic."
CUs should identify and segment risks and losses, Punch continued. He recommends creating "pools" of loans and investments.
"New and used vehicle loans have different risks," he said. "Use spread analysis to determine if the credit union is correctly pricing loans.
"Most importantly, do not guess," he added. "A good economy forgives all sins, but a bad economy punishes even the chaste. Do not buy 'hot' money if your credit union does not need liquidity. It is a costly game to be paying top rate right now, and with loan demand down, most credit unions do not need the liquidity."
Punch advises CUs to competitively increase their non-interest income. He said many credit unions operate under the assumption that fees are "bad," but he says they are not.
"Look at what is needed to recover costs," he said. "Review fees and consider offering options such as courtesy pay or skip-a-payment. These are programs that are fee generators."
Punch offered a football analogy to describe the economic picture into the foreseeable future: "The defense is on the field right now, and it will be for some time."
