TORONTO – Five members of the Credit Union Economics Group discussed emerging issues of the general economy, credit union liquidity, membership growth trends, and regulatory costs during a panel discussion last week at NAFCU's Annual Conference.
Membership growth has been a challenge for credit unions in recent years, CUNA Mutual Group Chief Economist Dave Colby highlighted, "despite tremendous expansion in potential membership with SEG and community charter approvals and new members gained through indirect lending programs." Roughly 44% of 2005 membership increases may be attributable to indirect lending, he said.
"Growth is always a strategic challenge, but just adding to the count and not building relationships is a cost drag at most credit unions. In an era of extremely tight margins and little room for error, nonperforming members are being subsidized by the best members. This cannot last for long, and eventually the best members will be enticed away to other providers, thus weakening the entire credit union," Colby said.
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To successfully achieve growth, credit unions must first take exceptional care of their best existing members, he said. "Going forward, it will be essential to develop a better understanding of the increasingly divergent needs and expectations of existing and potential members. Target marketing and focusing more resources on deepening relationships is a must."
This is particularly important as lending begins to lag and net interest margins continue to compress. WesCorp Executive Vice President Bob Burrell added that the gap between high-growth credit unions and the rest continues to expand. Savings growth has been concentrated in CDs over the last couple of years while loan growth continues to be dominated by indirect auto lending and mortgage originations. CUEG's latest forecast showed loan growth at 8.5% for 2006 and slowing further to 7.1% in 2007 while savings will increase 4.9% this year and 6.4% in 2007.
Another item tugging at credit unions' bottom lines is compliance. "My credit union has invested heavily in providing various systems that assist in complying with BSA and Office of Foreign Assets Control requirements and to help fight fraud and provide security to our members," Bruce Beaudette, president & CEO of Sunmark Federal Credit Union, said. "The cost is substantial to access our vendors' databases and to train staff on this complicated process."
NAFCU Chief Economist Tun Wai presented the CUEG's latest quarterly forecast, predicting slowing economic activity in the near term and keeping inflation front-and-center in the Federal Reserve's monetary policy deliberations. "A key element for credit union pricing and planning is to know when the Federal Reserve will stop raising the Federal Funds rate," he said. "According to the recent CUEG forecast, we are at or near the peak of Federal Reserve rate increases for the near term." [email protected]
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