Last week I asked a group of really smart credit union people if they were only allowed to see one number/ratio each month, what would it be? I heard member growth, loan growth, ROA, Net worth. And I thought, that’s interesting, no one said my favorite, loan to share ratio. As a financial cooperative members deposit their money at the credit union so those that need to borrow, can. Are we loaning out a good portion of the deposits we’re entrusted with?
Then I started thinking about all those numbers that we do lament over. And the “risks” associated with our business like interest rate risk, concentration risk, credit risk……I think the biggest concern today for credit unions is reputation risk.
Here are the 5 measures that I believe could signal reputation risk.
- Loan to share ratio. If the trend is going down, you should probably be concerned about the next four ratios.
- Loan approval ratio. Let’s face it, we’re not really known for speedy loans. In fact companies like Rocket Mortgage are highlighting the fact that for decades banks (and credit unions) could get away with taking their time approving a home loan. Innovative use of technology is making us up our game. The thing about rocket mortgage is they are just getting the “approval” done in 8 minutes. They are not funding the loan. But they know the likelihood that they will get that loan is better if they give the good news right away. If you have to give bad news, how do you say “no” to people? There’s huge reputation risk among Millennialls if they feel they have been mistreated. Unlike the Baby Boomer generation who thinks talking about finances in public is not appropriate, those youngsters will post their credit score on Facebook and tell all their friends how horrible you are. I met a loan officer years ago whose philosophy was to never turn someone down for a loan. She saw it as a coaching opportunity, so she either gave them a counter offer or a plan, that if they stuck to they would get a loan.
- Average age of your borrower. The average age of a credit union member nationally continues to hold at 47. But a research project I did with Filene’s i3 team showed the average age of the borrower was 2-5 years older than the average age of their members. This is not good news.
- Delinquency ratio. Also focused on the loans. I think the problem with this number is what we named it, looking at the percentage of loans that didn’t pay. What if we flipped this number and reported the % of loans that are paying on time? When you see that 99.73% pay on time ratio you might loosen up those lending policies a little.
- Fee income. When you’re not doing your job in the lending arena, we often look for non-interest income to help us pay the bills. And this is where it can really hurt a reputation. Look at the $5.00 a month Debit card usage fee that Bank of America attempted in 2011. A bank customer on Facebook turned it into the Bank Transfer Day. The dumbest fee ever charged by a credit union made The Consumerist blog. They charged $2.00 in the Drive-Up if you weren’t “ready” with your deposit or withdrawal slip. The bigger question is why are they still making their members do that?
Wayne Langei, retired CEO of Whatcom Educational Credit Union told me that when he would go to conferences and people would ask him what his credit union’s asset size was he would say “That’s irrelevant, I have X dollars in loans, those are your TRUE assets because that’s the money that is working for you and the reason we exist.”