Credit Unions- What we’ve seen, what we expect.
By: Dennis Gardiner, Partner | email
We are all painfully aware of the collapse of the financial markets. Sub-prime lending and derivatives have been largely blamed for the failure of the insurance companies, investment companies and financial institutions. Confidence in banks has diminished considerably.
We are glad we don’t audit banks. We proudly serve only credit unions, and we’re glad to see that they continue to avoid hitting the news.
Though you may already be taking advantage of some of the opportunities that these recent events present, we also realize that there are some serious challenges ahead of you such as deposit growth. Lower rates to discourage deposit growth and finding additional means to lend out dollars may be some solutions.
We assumed that with GMAC receiving bailout money, that getting new car loans would continue to be challenging, but now see that the credit unions have a program with a few car companies to get members into new cars, under the “Invest in America” program. We wish you the best of luck with that program.
We anticipate loan growth from lower mortgage rates; unless you are only re-pricing your own loans.
Furthermore, review your loan concentrations. Some of you may want to up your efforts to diversify your loan portfolio. Business lending has become one of the newest lending products many of you have gotten into, through CBL. It is more important than ever for credit unions to perform their due diligence before making the decision to participate in a business loan.
We also anticipate a great challenge in the regulatory arena. One of the common themes of the financial crisis has been lack of oversight and we fear the trickle-down effects of that will be a detriment to credit unions. We encourage you to do a risk assessment of your credit union, identifying both internal and external risks. If you feel you may not recognize or understand all of the potential risks, we would be happy to put our heads together on your behalf.
In closing, we encourage our credit union clients to perform their due diligence on loan applicants by remembering the four C’s of lending: cash flow, credit, collateral and character. This last item is why credit unions continue to stay out of the negative news– they continue to lend to borrowers of good character. In that, we applaud you for your character as well.