Benchmark your way to consistent peak performance

Low rates and high market unpredictability will continue to present investment challenges in the upcoming year. Those conditions will make 2022 financial planning an exercise in futility if your credit union fails to construct appropriate benchmarks now. Appropriate benchmarks are those tailored to your individual credit union’s unique needs and goals. They are built to withstand market upswings and downswings. They must take into account your credit union’s new risk parameters, lending goals, and projected liquidity requirements. Since COVID-19 still has the potential to wreak more economic havoc, your 2022 benchmarks must also be flexible. Undoubtedly, benchmarking can be an arduous task, but you can make the benchmarking process much easier by adhering to a few simple guidelines:

Build benchmarks based on your credit union’s unique data.

Before taking on the task of setting new benchmarks, remember that your credit union is unlike any other credit union. It has its own needs, goals, and risk parameters. Membership makeup, location, asset size, and risk exposure are just some of the variables to consider when benchmarking for your particular credit union’s success. Best practices call for avoiding benchmarks that are built using either historic or peer data as guides.

Get to know your balance sheet.

Building benchmarks that lead to consistent, desirable performance begins with a thorough understanding of your balance sheet. Is the loan portfolio performing as expected? What does your deposit situation require you to do? What measures are necessary to keep the balance sheet optimized under various rate environments given the constraints of your liabilities and your desired risk exposure? Once those questions are answered, the building can begin.

Make sure your new benchmarks meet these criteria:

• Unambiguous
• Investable
• Measurable
• Reflective of current opinions
• Accountable
• Tailored to your credit union’s unique needs and aspirations

It is only when benchmarks are built to meet the above criteria that they become useful.

Consider partnering with a benchmarking specialist.

If your credit union has not yet partnered with a balance sheet optimization service, this may be the right time to do so. Balance sheet optimization professionals are benchmark specialists. They make the benchmark-building process less complicated, less time consuming, and ensure greater performance success. Benchmark specialists have access to high-powered systems that can analyze changing market data quickly, run “what-if” scenarios, and generate reports that help set not only appropriate benchmarks, but achievable ones. They are also highly trained in interpreting analytics reports, and that expertise can mean the difference between capitalizing on opportunity or completely missing the window. It can mean adjusting risk exposure to work to your benefit or over-minimizing risk to the point of performance hinderance. In addition, benchmarking specialists can help you devise and implement optimal investment strategies that maximize performance no matter how volatile the rate environment. 

Choose your specialist wisely.

As you can see, partnering with specialists has many advantages. However, if you do decide to work with a benchmarking partner, choose wisely. Not all benchmarking experts have credit union expertise. Not all will be looking out for your credit union’s best interests. Vet carefully and partner with in-industry people you know and trust.  

Learn more.

Useful benchmarks need to be appropriate for the times, the market conditions, your credit union’s unique goals and risk parameters. They need to account for another year of near-historic low rates and sky-high unpredictability. Strategic benchmarking can help your financial team make the quick, smart, appropriate balance sheet decisions needed to ensure consistent peak performance. To learn more, visit  QuantyPhi Balance Sheet Optimization Services for Credit Unions. A complementary portfolio analysis and special pricing options are available for credit unions choosing to partner with QuantyPhi before December 31, 2021.