Hope, Optimism & Real Change Needed
As I travel around the country, I work to bring a message of optimism and hope to credit unions and others I am fortunate enough to address.
Certainly CUs face a number of challenges today, and will continue to do so in the future.
But, at the core, I truly believe that credit unions are the best option for a consumer today. That, in itself, will carry us a long way, particularly when we can point to the $6.8 billion we saved consumers last year, just by doing business at credit unions (and likely billions more for millions of other consumers, just by offering a strong alternative in the market place).
However, I don't wear rose-colored glasses. I know that credit unions must be strong, politically and financially, to continue being the best option for consumers. And I think the outlook for credit unions is good in both areas.
Things Are Looking Up
On the financial side, things are looking up. According to NCUA's recently released first quarter 2011 financial numbers, credit unions are showing "improvement"-but economic conditions still pose a challenge. Return on assets is up to 74 bps. That's s huge-especially considering that, 18 months ago, CUs posted ROA of 18 bps (at YE '09).
And asset quality has been improving steadily, a testament to the sound lending practices of credit unions. At the end of last year, delinquencies and net charge offs inched down from the previous year, and both were substantially lower than bank norms. At the end of the first quarter, both were down even further.
Meanwhile, membership inched up-by 300,000 members. That's modest growth, but it's a higher annualized growth rate than last year.
None of this is intended to downplay the real challenges that credit unions face. Unemployment remains relatively high (9.1% in May), which may be one reason why lending remains sluggish. Another likely key reason is that members are deleveraging, reducing their debt with savings. In fact, total loans contracted (for the second quarter in a row) by 0.86% during the first quarter, according to NCUA's numbers.
But that may be turning around. Our estimates at CUNA (based on our monthly survey of credit unions) show a slight jump in lending for April-up 0.2% over March.
And there is cause for more optimism.
According to CUNA economists, over the rest of the year and into 2012:
• Savings balance growth will remain at 5% for this year, but move up to 6% next year-below the 5-year average of 6.3%, despite rising disposable incomes, but still decent.
• Loan balance contraction will end, as lending grows by 4% (by year-end) and to 6% by year-end 2012.
• The economy and consumer confidence will recover; auto loans, credit cards, purchase mortgage loans will all be strong areas.
• Credit quality-as we've seen-will be better through this year and next; loan delinquency and charge off rates will fall as job growth picks up.
• Capital to assets will stabilize at 10%.
• For the first time in nearly four years, capital contributions will outpace asset growth, raising net worth ratios.
On the political side, I believe we are dealing from a position of strength. Sure, we were all disappointed by the Senate's failure to reach enough votes to "stop, study and start over" on interchange.
But that was not a credit union failure; together, CUNA, Leagues and credit unions generated more than half a million contacts with Congress-over a three -month period-in support of "stop, study." That contributed, mightily in my view, to a clear majority of the Senate voting for our position-including 12 senators who changed their vote from a year ago.
As one senator told me, the vote on interchange was the result of two factors: The reluctance of more than 12 senators to change their vote from a year ago (and, for many of them, to buck the leadership of their party), and; the poor reputation of banks.
To repeat-banks, not credit unions.
In fact, one senator who did switch votes in our favor told us in the closing days of the debate (through his chief of staff): "I think it is fair to say that if we do flip (change our vote), it will be because of the credit unions." The senator did, and it was.
Still, we can do better. My own view is that credit unions need a 535-member strategy in the future. That is: The ability to reach out to every single member of Congress-loudly and effectively-to impress upon them the credit union message.
And we are going to need that ability as we move forward with such issues as supplemental capital and increased authority to make business loans-something bankers are already lining up to fiercely oppose.
Common Vision Needed
We are also in need, I strongly believe, of a common vision for credit unions. That is: Not what the bankers want us to be, not what the bureaucrats envision, nor even what politicians sees us as being.
Credit unions need to decide among themselves-for ourselves-what we are going to be, within the parameters that has made us successful so far: Cooperative, member-owned and directed, not-for profit financial institutions. Then: We need to pursue that vision with passion.
In fact, CUNA is already working on such a vision, and has begun a dialogue with key system players. We hope to have something for the movement to begin considering later this year or early next.
Hope and optimism: That should be the outlook for CUs today. We are the best option for consumers, and that drives everything that we do.
Bill Cheney is CEO of CUNA.