Brace for Tougher Times, Trade Group President Warns

Kenneth Robinson, president of the National Association of Federal Credit Unions, has been trooping across the country urging credit unions to cut costs, lend carefully, and keep a close eye on the bottom line.

It is not that he is bearish on his industry. Credit unions have had a solid year. Delinquencies are at a record low and profits at an all-time high.

But the retired Marine Corps two-star general believes credit unions should be bracing for tougher times.

Mr. Robinson, 62, was on the board of Navy Federal Credit Union, the country's largest. He retired from the corps in 1983 and joined NAFCU the next year, after a stint with the National Credit Union Administration, the industry regulator, assisting troubled institutions.

NAFCU, the smaller of the industry's two major trade groups, has about 750 members, mostly larger credit unions.

Mr. Robinson discussed his views with American Banker reporter Bill Atkinson.

Q.: What message have you been delivering on your recent tour? ROBINSON: That 1991 is probably going to be the best year credit unions have ever had - [but] looking forward, the picture does not look quite so rosy.

We are not free of problems. We have about 450 credit unions with capital below 3%. Three percent is the area where you begin to arch your eyebrows.

Lending is not as good as it has been in previous years. Our loan-to-share ratio is declining, probably from 67% to 60%. It may even drop below 60%.

Q.: Aren't you being too pessimistic? ROBINSON: One of the dangers is you can take a year like 1991 for granted. We've had two or three in a row like that; '89 was good, '90 was good. Pretty soon you've got to come back to reality.

Q.: Then, should credit unions get ready to pay even more in premiums? [Editor's note: This year the industry's regulator imposed an insurance premium - the first for credit unions in seven years.] ROBINSON: A lot of them are asking if there is going to be another premium. I don't think so. But the very conservative person will budget for it.

Q.: Does weak consumer spending hurt your members? ROBINSON: Credit unions usually deal in ... life's essential. People have to eat, they have a home, and they have a car. They can't put those things off.

I'm willing to concede we may have suffered a 10% decline in lending, but that is nothing compared to what you are seeing in other financial institutions.

Many of the things that people are putting off are the things like the second home, maybe timesharing, maybe a vacation.

Q.: How are credit union managers reacting to the economy? ROBINSON: I've seen them move smartly to keep pace with the reduction in costs of funds. I think management, in general, is more sophisticated than it was 10 years ago.

Q.: Do you see more consolidation in the industry? ROBINSON: Typically, we have been losing between 450 and 500 [credit unions] a year for the last 10 years. This year it is going to be about 700.

I think the NCUA is seeking to merge credit unions more quickly today. I think they are going in there sooner. They are not waiting for credit unions to become insolvent.

Q.: Are you an advocate of consolidation? ROBINSON: Yes and no.

Emotionally, I'm disappointed to see a number of credit unions disappear. In some cases it means people are no longer going to get service.

On the other hand, we are facing the advance of technology. The credit unions that will survive will be more efficient and provide better services. The need for some credit unions is disappearing.

Q.: Commercial bankers always scream about credit unions' federal income tax exemption. Is it inevitable that the industry will eventually be taxed? ROBINSON: Some people trundle that out as kind of a club. It seems to me that when the British did that, the Colonials dumped their tea. I don't see taxation looming this year. I can't imagine any administration riling up 62.1 million voters.

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