Credit unions expect modest loan growth this year as the economy improves.
First mortgages and vehicle loans should do well, especially if credit unions capitalize on their strengths: knowing their members and providing exceptional service.
Consider members’ circumstances
Aventa Credit Union, Colorado Springs, Colo., will continue on its current consumer lending path, although it has had to adapt to members’ changing financial circumstances due to the recession.
“Members don’t fit into the same boxes they used to in terms of credit, disposable income, and other factors,” says Sandra Wells, senior vice president of lending at the $150 million asset credit union. “Our portfolio grew in 2012 with more B- and C-tier loans, and I know that will continue” with proper risk safeguards in place.
Aventa plans to evaluate the possibility of adding member business loans in 2013.
“There’s a huge opportunity if you can handle the compliance challenges, and small businesses will need the help,” Wells says. “Sometimes [big banks] shy away from smaller businesses, so that’s something for credit unions to look into.”
Used-vehicle loans and loan consolidations remain strong for Aventa.
“And we built up our mortgage department last year, expecting significant opportunities there,” says Wells. “Because interest rates will stay low, borrowers will still look to refinance and consolidate, and some will purchase homes.”
She expects short-term personal loans to be popular this year. “They’ll be $1,000 or $2,000 quick-cash loans,” she predicts. “Members can be in and out in 30 minutes, depending on their qualifications.”
By the end of January, Aventa will implement e-signatures, further enhancing member convenience.
“They won’t even have to come into a branch,” says Wells. “We recently acquired a credit union in a struggling rural area, and we needed a lending strategy for those members.”
Wells forecasts consumer loan growth of around 2%, but foresees fewer loans for newer, high-end vehicles and boats.
“It might just be our geographic area, but that’s not something borrowers are looking for. Credit card lending will probably increase slightly, but people are still cautious.”
Member bankruptcies have increased during the past couple of years, as has members’ use of unsecured debt. Most borrowers’ FICO scores are in the 650 to 690 range vs. the 700s, Wells notes.
“Our area has a higher unemployment rate than the national average,” she adds. “It’s getting slightly better, and members are able to get jobs, but they’re either part-time or at substantially lower salaries.”
Wells believes credit unions have a real advantage over other lenders.
“If we lend the traditional credit union way, based on understanding our membership and thinking outside the box, we’ll see growth.”
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