WEST PALM BEACH, Fla. -
About three-quarters of credit unions are reporting members are dialing back their borrowing in a new poll conducted by Credit Union Journal.
That finding, consistent with other recent data, has analysts urging credit unions to better manage their lending activities to compensate for the slowdown, while one CU that has maintained lending volumes is crediting its marketing strategy.
In the Credit Union Journal survey, conducted at cujournal.com, readers were asked how members are reacting to tighter credit standards. Some 12.5% said members are turning to the CU for small business loans, and 15% said members are turning the CU for mortgage loans. But the biggest response, 72.5%, indicated members simply aren't borrowing as much.
In addition, CUNA's 2007-08 Economic Forecast recently reported that credit union loan growth will slow in 2008 to around 5%, "the slowest since 1998, as slowing economy, falling consumer confidence, tighter underwriting standards and low pent-up consumer demand reduces members' demand for loans."
That all leaves the question: What are credit unions doing to make up for that lost income?
"This is consistent to what we're seeing," said Dave Colby, chief economist for CUNA Mutual Group in Madison, Wis., of the survey results seen by the CU Journal.
At this time, Colby said that credit unions can get a little more aggressive at managing their loan activities, and by going a lot deeper into their credit pools.
"There's a real opportunity out there," he said. "There are opportunities now to make good loans to members with good income."
Colby said this may be the perfect opportunity for credit unions to take advantage of the situation and demonstrate to consumers the value of credit unions.
"Credit unions really don't like turning people down," Colby said. "It's a tough thing to do."
What credit unions should do at present, Colby suggested, is offer a fair price for risk-based loans and let the consumer decide.
Another strategy, he said, is adjust retention strategies on holding first mortgages, he said. "You can basically pick your own mortgage portfolio," Colby noted.
Moreover, credit unions can also "turn up the sales culture on cross-sells," Colby advised. "Credit unions-we're coming from a tremendous period of strength," he said. "The vast majority of investments are right here, in member loans."
Community First Credit Union, in Appleton, Wis., hasn't seen a decrease in lending, but Tim Sciborski, the 75,000-member CU's VP-lending, said effective marketing strategies have helped it maintain volume.
"It's a matter of marketing correctly," he said. "You have to work harder at getting loans that are out there. I do think this was our key to growing loans more than last year. It's a matter of 'what is the offer?' - what catches the attention?"
While borrowing is down in specific product lines, such as auto lending, Sciborski said that credit unions must find a way to reach their members. "We're still not meeting our budget," he said. (The CU set a goal of 16% loan growth for this year, and achieved 11%.) "But most credit unions only achieved about 5% or 6%, so we're about double. I really attribute it to marketing. We spend of a lot of money on marketing."
Community First has not increased fees to offset lost income, Sciborski said. "We also made up for it with some investments-but not by raising fees."
Dr. Tun Wai, chief economist and director of research for NAFCU, in Arlington, Va., said the "squeeze has been going for quite some time."
"The yield curve is still inverted, believe it or not," he said.
Wai expects the credit unions' cost of funds to get lower by next year. "And the ROI should also improve," he said.
In the meantime, credit unions may have "to boost it up in terms of fees," Wai said. "Credit unions have a long way to go before they even match the bank side."
One fee opportunity he cited is in mortgages. "There can be a lot of fee income for real estate," he said. "Credit unions also sell a lot of loans," Wai noted. "You can get a lot of income from selling the mortgage, but keeping the servicing rights. Servicing income has been rising."
Wai recommends against attempting to compensate for lost loans by seeking greater yield from investments.
"A lot of credit unions still keep their investments short," he said. "I think this is the time to keep the income strategy more flexible. I think lending will still outpay savings this year."
Wai also said that he predicts lending to be strong throughout the next year for credit unions, but that most won't see a lot of savings growth. (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com
