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Are credit unions prepared to take proactive steps in response to a potential slowdown?
For CUES member Marty Pell, CIE, SVP/chief lending officer for $3.2 billion Coastal Federal Credit Union, Raleigh, North Carolina, the economic landscape is top of mind when it comes to the future of lending.
“We’re late in the cycle,” Pell says. “But as credit unions, are we prepared for a potential slowdown? What consumer behaviors or governmental policy shifts will impact our business? We must be poised to take proactive steps.”
When Pell thinks about the shifting economy, he considers:
Asset quality. When delinquency naturally increases as part of the economic cycle, the dynamics change from growing to protecting the portfolio. “In advance of a recessionary environment, determine which loans have historically performed the best in such scenarios and compare those to your own loan portfolio,” he advises. “See how the portfolio structures align. If your portfolio lacks the performing loans it needs, ... adjust your strategies.”
Changing consumer behaviors. As the economy declines and young, ride-share-service-loving people come of age, consumers could buy fewer cars and, therefore, need fewer car loans. In 2018, car loans were 46 percent of Coastal CU’s $2.7 billion loan portfolio. “Where is the auto industry (including lending) heading during this economic shift?” he asks. “If it declines, how do we replace that business? We’re currently developing strategies to address these types of questions.”
It’s essential to anticipate trends as much as 15 years out, Pell adds. “Prepare to embrace loans that could supplant potentially declining loan categories. New segments may include student or small-dollar loans or shifting to business lending opportunities—segments you may not have participated in previously.”
Reform of the government-sponsored enterprises. “After the Great Recession, both Fannie and Freddie went into conservatorship with the caveat that ... [fees paid by lenders] would be standardized,” he says. If Fannie and Freddie are removed from conservatorship, preferred pricing could go to the largest lenders, giving them a competitive advantage.”
Disintermediation of funds. “Every financial institution relies on the deposit side to fund loan demand,” Pell says. “When members put money on their Starbucks cards, it’s money not sitting in their credit union accounts. How drastically will these disruptors reshape our basic financial services business model and contribute to the disintermediation of funds?”
Despite these concerns, Pell is optimistic about his CU’s future. “We have a strong history of innovation and passion around the financial well-being of our members,” he says. “These close relationships inform our strategic investments.”
Stephanie Schwenn Sebring established and managed the marketing departments for three CUs and served in mentorship roles before launching her business. As owner of Fab Prose & Professional Writing, she assists CUs, industry suppliers, and any company wanting great content and a clear brand voice. Follow her on Twitter @fabprose.
