Portfolio Management: Four Keys

Whatever your CU’s size and financial strength, loan portfolio development is critical.

October 24, 2011

Sound loan portfolio management has always been essential. But its importance has become particularly evident to credit union boards and management teams during the past several years.

Measuring and mitigating risk, however, are only part of effective loan portfolio management. Increasingly, loan portfolio development is becoming credit unions’ top priority.

Whatever your credit union’s size and financial strength, these four initiatives are key to loan portfolio man-agement:

1. Line of credit analysis. It’s essential to have a strategy and a process for reviewing credit lines—credit cards, personal lines of credit, or home equity lines—on an annual basis, at a minimum. A low average balance can turn a potentially profitable product like a personal credit line into a money loser.

Ent Federal Credit Union recently reviewed 30,000 personal credit lines for the first time in years. We increased the line amounts while reducing rates on 24,000 of these accounts. And using a combination of FICO scores and credit bureau attributes, the credit union sliced and diced the portfolio to exclude small groups of high-risk borrowers who couldn’t be identified by credit score alone.

The cumulative amount of the line increases was $80 million. And we’re hoping to generate an additional $25 million in balances during the next year through this initiative to improve our rates and line amounts.

2. Preapproval strategy. Increasingly, successful lenders are building balances using credit card-style preap-proval campaigns for products such as auto loans. Credit card companies have known for years that a preapproved offer is the easiest way to generate new accounts. Using this technique, lenders minimize time spent both identifying unqualified candidates and processing new-account funding.

If your credit union has fallen behind the competition in this area, members ultimately will ask themselves, “Does the credit union want my business?” Don’t overlook alternative delivery strategies, beyond direct mail, to transmit these offers.

3. Member retention. Ent Federal recently faced challenges in growing its consumer loan portfolio. Turns out, the credit union was receiving $4 million more in loan repayments than was budgeted. It takes both new loan volume and retention of existing loan balances to grow a portfolio.

Most of the repayments appeared to come from members squeezing every last penny from their budg-ets—refinancing existing Ent Federal loans through other lenders to lower rates and payments.

To avoid this in the future and save the relationships, the credit union is building an automated process that will prompt employees—upon member inquiries for payoffs—to determine whether the members qualify for lower rates.

Remember: Member retention strategies require as much attention as new loan development ideas.

4. Product positioning. Ultimately, your credit union must constantly find ways to reinvigorate and reposition its loan products. Consumers are becoming products of “the Apple age”—with enhanced electronic products introduced every three to six months.

Coinciding with that trend, during the past year, Ent Federal’s lending campaigns no longer provide up to four to six months of “lift” in volume. At best, our loan promotions yield two months of increased performance.

How will you keep your loan products current with the market? What can you change about an auto loan to make it different from everyone else’s?

The best product innovators create value in ways consumers never previously imagined, but almost immediately embrace, once introduced.

A little brainstorming with your staff probably can produce several low-cost, high-value ideas to last the next several years.

BILL VOGENEY is senior vice president/chief lending officer at Ent FCU, Colorado Springs, Colo., and vice chair of the CUNA Lending Council. Contact him at 719-550-6580. For more information about CUNA Councils, visit cunacouncils.org.