As we prepare to turn the page on 2012 and open the book on 2013, we asked experts in four critical areas—the economy, legislation and regulation, consumer awareness, and lending—how credit unions should navigate the twists and turns they’ll inevitably confront down the road in 2013.
Not everyone sees economic gloom and doom on the horizon. “We’re forecasting 3.5% growth in gross domestic product compared with the 1.7% we had as of the second quarter of 2012,” says Steve Rick, CUNA’s senior economist. Potential positives include acceleration in new home sales, increased fuel supplies, and growth in health-care spending and new car purchases.
“People haven’t been confident making major purchases during the past few years,” Rick says. “We anticipate that pent-up demand will translate into 5% overall loan growth in 2013.”
The biggest lending opportunities likely will be in vehicle loans, credit cards, and mortgages.
Of course, there’s no guarantee of an uptick. “The big concern is that we’ll have a double-dip recession caused by tax increases,” Rick warns. “Tax cuts are expiring and what happens next in this area will be critical. We also have to worry about the impact the Eurozone debt crisis could have in the U.S.”
Banks’ resurgence will also have an impact. “Banks have recapitalized, and their earnings are up to near pre-recession levels,” Rick says. “During the credit crunch, banks typically were interested only in consumers who could make big down payments and had stellar credit ratings. Now, banks are going after a wider range of loans, and they’re becoming a bigger concern as competitors.”
Another ongoing concern is capital constraints. “Imagine that your business has the infrastructure to handle 20% growth and the opportunity to do so, but you can’t access the capital,” says John Gregoire, president of the ProCon Group. “Right now, our reserve levels have to be the same for cash as they are for the riskiest instruments in our portfolios. There’s no sophistication in how we assess our capital needs.”
Plus, most credit unions don’t have access to secondary capital.
To navigate the twists and turns of 2013, Rick and Gregoire suggest:
►Building on credit unions’ strong financial position. Charge-offs and loan loss provisions have dropped dramatically in the last few quarters, Rick says, putting credit unions in a better position to invest in branches and technology upgrades to become more competitive.
►Creating opportunities with small businesses. “Small businesses are as ripe for credit union support today as consumers were in the 1930s and 1940s,” Gregoire says.
He recommends providing risk-based loans to small businesses and offering back-office capabilities, such as payroll and accounting services. These services provide both revenue and financial intelligence that can help credit unions make more informed business lending decisions.
►Seeking out investment opportunities. “Tools like derivatives have, understandably, gotten a lot of bad press in recent years,” Gregoire says. “But if they’re structured correctly they could be a hedge against a spike in interest rates. They’re a tool credit union chief financial officers should investigate.”
NEXT: Legislation and regulation