The Cost of Making Investments Vs. Making Loans
"Purely from a financial perspective, in a lot of cases right now it makes more sense to make an investment than to make a loan right now," said Mark Schieffer of Suncorp. "Once you look at the cost to market, originate and service that loan, plus the potential for prepayments, delinquencies and charge-offs, that 6% yield on that loan just ratcheted down to 5%. On the other hand, I can pick up the phone and make an investment at 5.5% with out any of the costs, delinquencies or prepayments."
But philosophy rules. After noting that it may make more financial sense to make an investment in the current environment, Schieffer went on to note that he would never counsel a credit union to just shut down its loan program. "That's not the credit union philosophy. You have to look at what your members need," he commented. "That's the beauty of the tax exemption, it means you can afford to do some of these things, keep making loans, raise your rates on deposits to get share growth running again and gain market share. The way I see it, my job is to say, 'OK, here's the finance side of things, now you look at your members and your philosophy and determine what you need to do."