MADISON, Wis.-Growth for growth's sake in 2012 will only lead to growing problems, notes one analyst.
"Management needs to decide if the credit union can afford to grow members or deposits without adverse net worth implications," said Dave Colby, CUNA Mutual's chief economist.
While lending is the obvious area of attention for credit unions, Colby said it isn't the only area.
Growing the bottom line leads to the capital needed for investment elsewhere. To grow that capital, Colby offered four strategies:
• One: Noting that A paper is a "pure commodity," Colby urged more CUs to consider risk-based lending. "This means taking on more risk, obviously, but with the price differences the return should be the same for B or even C paper as it is for A paper," he said. "Credit unions know their members, so they should be able to manage credit risk. And for those who are worried about risk, they should keep in mind they did not have control over their investment risk when their money was at the corporates."
• Two: Credit cards. "If a member has an 18% card and the credit union has an 11% card, the credit union owes it to the members to persuade them to convert over to the credit union's card," he said. "This will help the member's cash flow."
Even if members do not carry outstanding balances, Colby pointed out increased use would generate more interchange income at a higher rate than debit cards currently do.
• Three: Incentives to move members to lower-cost channels. For example, if members opt to receive their statements electronically rather than by postal mail, the credit union can offer them a quarter-percent off a loan.
"Statements are really expensive to mail," he observed. "Loan rate discounts are the easiest incentives to do, and credit unions can make it up on the expense side. This also creates more 'sticky' members."
• Four: Colby believes there should be a "major industry push" for consolidation of backoffice functions that are not member-facing. For tasks ranging from regulatory compliance to check processing, he said, "certainly there can be economies of scale."
