Why One CU Economist Isn't So Bullish On 2011

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ARLINGTON, Va. — This year could prove to be even more difficult for CUs than 2010, cautioned Tun Wai, who is also concerned that credit unions may be tempted to move away from conservative lending practices as the weak economy drags on.

"I would say that this year will be a challenge," said NAFCU's chief economist, "unless the economy picks up substantially."

According to Wai, that won't happen. Savings growth (6%) will continue to outpace loan growth (3.5%) in 2011, and interest rates are not expected to rise much, predicted Wai, who reminded that will continue to place earnings pressure on credit unions. Wai projects CU ROA this year to be only .55 before stabilization expenses and that net worth will drop (9.51%) for the third year in a row.

Wai expects credit unions will be very worried about how to generate earnings, with only a slow improvement in the economy, little loan growth, and greater pressure on revenue with new interchange rules. "So be careful what you do today. You don't want to make a bad loan because that will hurt you later on," cautioned Wai. "Be mindful of your lending standards. Part of the problem is the quality of the applicants, which I hear from our members is not that great."

Collaboration is the silver bullet that could make 2011 and the coming years more profitable for CUs, noted Wai, who hopes credit unions will embrace cooperation on a much larger scale. "The cost (associated with starting collaborative efforts) has always been the hurdle. But a sharing of costs will make the situation credit unions face much more tenable. I think we will see more new ways of delivering services without having to spend a lot of money-affinity or other relationships through third parties or CUSOs."

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