Credit Crunch is CUs' Opportunity to Shine

CUNA News Now
March 18, 2008 | COMMENTS

The definition of a credit crunch is when even good borrowers cannot obtain credit, and today's credit crunch is an opportunity for credit unions to shine, says Credit Union National Association chief economist Bill Hampel.

With the current market's fluctuations due to the subprime mortgage lending crisis, "stockholders and investors in subprime securities and hedge funds will take a beating," said Hampel, adding, "But, 'easy come, easy go.'"

The weakening housing market has now pushed into the broader economy, he said. Credit unions' delinquencies increased during fourth quarter 2007 and will likely continue throughout 2008, he said.

"Credit unions will likely see higher loan losses and lower net income. No doubt it will be uncomfortable. There will be an overall flight to asset quality," Hampel said, adding members will save more and borrow less, putting downward pressure on credit union capital ratios.

But "credit unions should not overreact," he advised. "Their balance sheets are in good shape, and the national credit union net worth ratio is about 11.5%. Most credit unions can afford to lower savings rates much more slowly than the rest of the market," he added.

"This is a good opportunity for credit unions to show what they are. It's an opportunity to shine, and grow and pick up marketshare," Hampel said.

A March 13 letter to its member credit unions from the Pennsylvania Credit Union Association reinforces the point. "Credit unions are not directly dependent upon the capital markets, so now is your time to shine and grow, in terms of members, loans, and, of course, shares," said the letter.

"Remember the umbrella man? He was there in challenging times, and now is the time to clearly demonstrate the credit union difference and in the process capture additional market share," said PCUA.

PCUA said credit unions have excellent opportunities in these areas:

• Business lending.
• Student lending.
• Mortgage lending.

"Car loans may be down this year, credit cards are a competitive struggle versus the large commercial issuers, but there are opportunities galore," PCUA added.

This article originally appeared in CUNA News Now and is reprinted with permission.