Many economic indicators are pointing in the direction of a slow recovery. While credit unions will continue to experience fallout from the worst economic downturn in a generation, there’s a growing sense that we’re starting to see daylight, according to CUNA’s just-released 2011-2012 Credit Union Environmental Scan.
Earnings are crawling back to respectability. Lending is coming out of its coma, albeit with wobbly legs. You shouldn’t have to pour a lot of additional funds into your allowance for loan loss account this year. You still have the interchange issue and corporate stabilization to deal with, but those issues are coming into sharper focus, and you can make plans to offset expected costs.
Your credit union’s strategic planning team should be aware of the following 10 trends. They’ll affect your credit union either directly or indirectly, and your team needs to develop strategies to address them.
1. Board education
NCUA is raising expectations of federal credit union directors, according to the rule on fiduciary duties it issued in December 2010. At a minimum, directors should be familiar with basic credit union finance and accounting practices, including the ability to read and understand a balance sheet and income statement.
If it doesn’t have one already, your board needs to adopt a culture of continuous learning to live up to its fiduciary duties. It must stay informed of relevant information that could affect its decisions. While a board can delegate operational tasks to the president/CEO, it can’t delegate its responsibility to ensure safety, soundness, and compliance with state and federal laws. Director education and financial proficiency have become absolutely critical.
Credit union loan balances are expected to rise 4% in 2011 and 6% in 2012 following a 1.5% decline in 2010. Auto loans, private student loans, credit card loans, and purchase mortgages will hold potential for most credit unions through 2012.
Student loan debt outpaced credit card debt for the first time ever last year, and it’s likely to top $1 trillion this year. Last year, graduates who took out student loans left college with an average $24,000 in debt.
This will likely to grow more quickly with the coming round of budget-slashing. Pell grants for low-income students are expected to be cut and tuition at public universities will probably increase as states with pinched budgets cut back on the money they give to colleges. The recession created a large pool of potential borrowers with subprime credit scores. Credit unions with disciplined underwriting and subprime pricing will see significant lending opportunities.
Next: Earnings pressures