NAFCU Flash Finds Few Boards Still Determine Loan and Share Rates

ARLINGTON, Va.-NAFCU staff decided to look into loan and share product pricing in May’s Flash Report for its importance to credit union earnings. NAFCU found that just 28% of boards still hold the reins to set loan and share pricing. At the remaining credit unions, rates are set by the CEO (62%), ALM committees (18%), senior management teams (12%), or various committees (8%). Of those credit unions where the boards do not determine the rates, 94% of respondents said either the ALM committee or senior management teams set the loan rates while 90% said the same for share rates. Flash respondents said a number of factors determined rate setting. Thirty-eight percent said money-market share rates were driven by the market. Another 29% said they priced money markets off the Fed Funds rate. Fifteen percent priced them off the three-month Treasury yield and another 3% said they were set in line with earnings. Fifteen percent used various other benchmarks, including the six-month Treasury yield, consultants, and internal indices. Regarding regular share rates, 47% said they were determined by competition, while another 31% employed the Fed Funds rate. Treasury yield and pricing in line with earnings were each used by 6% of respondents. The last 10% used consultant suggestions, the Rate Watch Deposit Report and internally generated indices. At 38% of the credit unions, the boards set quantitative limits on loan sales or share promotions. Those credit unions with internal limits set by the board most often use a time limit (52%) while another 14% set a dollar cap. Eleven percent employ FICO scores to limit loan sales and 14% use combinations of all these items. Another 9% said it depended upon the type of promotion. The Flash also found that risk-based lending is becoming a more common tool among credit unions. A full 81% of respondents said they use risk-based pricing with “discernible and quantitative criteria that distinguish the various risk categories and the related interest rates.” [email protected]