BIRMINGHAM, Ala.-Pointing to a "backlog" of consumer credit needs, Dennis Dollar is cautioning credit unions to avoid becoming too risk averse in 2012.
The Dollar Associates principal told Credit Union Journal that CUs face increased loan portfolio scrutiny from regulators that could force many to tighten lending standards at a very inopportune time.
"Many of my credit union clients have expressed to me, right at a time when they need to be able to make more loans for member service and income reasons, that they are facing a risk-averse approach from the regulators that is arresting their loan intentions."
Citing pent-up demand for consumer loans, Dollar said credit unions have to establish a solid balance between loan demand and the risk-averse approach of the regulators. "They should not disregard the regulators' concern about risk management, but they should not let that take them from effective risk management into basic risk aversion."
Dollar cautioned that becoming too risk averse could alienate many new members who have come over from banks, and not only because of the bank fees. "The fees may have been the catalyst, but many had been upset with banks' lending practices-tight underwriting and little concern for small loans."
Dollar said credit unions need to show these new members that the CU will make some of the loans that the banks will not. "The challenge again will be to exercise proper risk management sufficient to satisfy regulators without crossing the line into risk aversion. Become too risk averse and you satisfy the regulators but leave members disillusioned."
