An improving economy could put loan growth in the 5% range in 2013, up from about 4% in 2012, CUNA’s economics and statistics department reports. Leading loan growth next year
likely will be first mortgages and auto loans, says Mike Long, executive vice president/chief credit officer at $1.6 billion asset UW Credit Union, Madison, Wis.
“During the recession, people put off vehicle purchases and there’s a lot of pent-up demand,” Long says.
Credit card originations should also improve as credit unions offer more of the card features members want. “In the past there was a greater focus on rates,” Long says. “But members who treat their credit card like a debit card—and pay off the balance each month—are more interested in the rewards programs.”
Credit quality also is on the upswing. Long reports an 18-year low on delinquencies but cautions that credit unions must be careful to maintain their underwriting standards as loan competition increases.
Nationally, CUNA projects overall loan delinquencies will fall from 1.26% at year-end 2012 to 0.90% in 2013, and charge-offs will decline from 0.73% to 0.65%.
Loan income, however, isn’t likely to rebound strongly. CUNA predicts credit unions’ return on average assets will fall from 0.8% at year-end 2012 to 0.7% in 2013.
“The number of loans is growing but the margins are so compressed that the spread between loans and deposits is razor thin,” Long says.
To succeed in the lending arena, credit unions should heed Long’s advice:
►Don’t retain fixed-rate mortgages. “Interest rates will rise eventually and credit unions are going to question the logic of holding 30-year mortgages at 3%,” he cautions.
►Diversify your loan portfolio. Spread risk among a variety of loan types: auto, mortgages, credit cards, and other unsecured credit.
►Grow your credit card originations. Interest rates on credit cards remain much higher than for other loans—but avoid reaching too low on credit score tiers.
►Reward good behavior. Filene Research Institute’s LIFT (Low Interest for Timeliness) pilot loan program, for example, rewards vulnerable and low-income members for making timely loan payments with lower interest rates.
►Focus on your trusted adviser role. UW Credit Union started doing credit consultations with its members in 2011 and had conducted 20,000 as of October 2012.
“We review the member’s credit bureau report and pinpoint ways that we could save them money,” Long says. “We’ve recaptured a lot of loans this way and helped our members, too.”