Study Suggests Closer Look At Assets-Per-Member Ratio

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Credit unions would serve themselves well by taking a close look at their assets-per-member ratio to cut costs amid increasing competition, the Filene Research Institute said.

Bob Hoel, Filene's executive director, said that a recent study to help credit unions lower their expense ratios pointed in that direction.

"It appears that we will have tighter spreads between our loan rates and our savings rates. We are expecting those to continue to shrink, so more than ever we need to take a harder look at our expense ratios," he said.

Among the study's findings was that credit unions shouldn't just look at reducing expenses. Another way is to focus on the asset side of the expense-to-assets ratio.

Deposits-per-member "is the most powerful expense ratio predictor identified in this research. As deposits (shares) per member increase, expense ratios decrease substantially," according to the study co-authored by Joanne M. Doyle, of the James Madison University, and William A. Kelly Jr., of the University of Wisconsin at Madison.

"A way (to attract more assets from members) is by rates. Another is by offering certain services. In addition, communicating financial stability and cross-selling" helps, Hoel said.

The study further found that real estate loans help to "reduce the expense-to-asset ratio."

One CU's Experience

A comment in a separate interview by Cliff Mower, manager of equity lending at the world's biggest credit union in the United States Navy Federal CU, points this out.

At NFCU the "average portfolio consumer balance loan is about $9,000," Mower told The Credit Union Journal. The average equity loan is about $48,000 and we have probably 600,000 consumer loans and 69,000 equity loans. From a service-and-cost standpoint it takes a lot less effort to service an equity loan than it would a consumer loan."

Despite the fact that small deposit accounts and small loans can be just as expensive to service as the bigger accounts, efforts to cater to the underserved shouldn't be slowed, Hoel said.

"Low-income people are outstanding members because they tend to concentrate their business on a financial institution. They use products that have a sufficiently high interest rate to more than cover expenses," Hoel said.

The study, named "Predicting and Managing a Credit Union's Expense Ratio" provides a tool that credit unions can use to compare expenses with other credit unions in the same asset-size category.

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