Getting more strategic about loan growth

As a credit union leader, do you ask yourself what you can do differently or better to ensure loan growth that equates to future profitability and member retention? It’s a question many, if not all, credit union leaders ask themselves on a daily basis because they obviously want their CUs to be successful and become the primary financial resource for their members. So what does a credit union have to do to achieve such a secure future?

Successful credit unions find a way to create a culture that engages all staff to elevate the financial institution to achieve greater success – in this case striving for greater loan growth. Sure, many credit unions are doing pretty well now in the post-recession era. But what can they do to take it up a notch or two to weather another storm?

This may seem painfully obvious but offering the right products and services at the right time is key. Ok, that’s easy to say, but what are the right products and services people who live and/or work in your communities need and desire today?

When talking to them, you’ll probably start to see patterns emerge after conducting surveys, seminars, and other feedback mechanisms.  For example, 18- to 24-year olds tend to do business with and are loyal to the first financial institution that gives them their first credit card and/or first auto loan.  Mobile banking and e-services tend to be secondary considerations.

To appeal to this market and other markets, below are a few ideas that could spark increased loan growth, profitability, and loyalty/retention:

  • 100% financing on automobile loans bundled with a credit card for first-time borrowers and/or recently discharged bankruptcies pricing for risk with E paper rate.  Don’t lose loan opportunities by requiring a co-signer and/or 20 percent down. This provides a great opportunity to capture the 18- to 24-year-old market and build loyalty with individuals with character who have faced challenging times in their lives such as job loss, income loss, divorce, and/or medical circumstances.
  • Secured credit card that can immediately boost a member’s credit score especially for individuals who have no credit score due to lack of credit history as well as individuals who have recently been discharged from bankruptcy (because their credit cards have been closed.
  • Free credit score analysis (CSA) that gives you the opportunity to review individuals’ credit reports to look for ways to lower their payments on loans with other financial institutions; eliminate high-interest rate credit card balances; and raise the credit score.
  • Credit score management seminars to educating people on how they can manage, protect, and raise their credit score (onsite one-hour “lunch and learns” for businesses)
  • Consumer credit counseling solutions that allow people to reduce interest rates as high as 29.99% to rates as low as 2% in some cases saving people up to hundreds of thousands of dollars during their lifetime

Taking the previous ideas into consideration, here are some risk-based lending strategies:

  • Price slightly below the competition
  • Price for profitability according to the risk level
  • Establish an “as low as” marketing rate (24- or 36-month term) to attract all members and potential members to your credit union
  • Create a “Match” or “Beat” program to retain A+ or A-rated members
  • Develop an auto loan pre-approval program that entails getting $100 when auto loan closes if you get pre-approved for an auto loan before shopping
  • Generate a $100 refinance program that allows a person to refinance a loan from another financial institution and receive $100 when the loan closes with a focus on “lowering their monthly payment.”

These ideas are certainly worthy and proven to work. Hopefully, they will generate more quality profitable loans and increased retention. But these ideas aren’t worth a hill of beans if you don’t understand the dynamics of the economy and the impact it is having on credit unions as a whole. This understanding allows you to establish and maintain a holistic leadership approach to greater financial strength and growth. For example, here’s a snapshot of Maryland credit unions (source: CUNA as of May 2014):

  • Number of credit unions                      100 (headquartered in the state)
  • Estimated memberships                      1.5 million
  • Memberships in credit unions            1.7 million (headquartered in the state)
  • Media asset size                                     $28 million
  • Membership/population                      30.6% (based on 2010 US Census Bureau population of 5.7 million)

Based on this analysis, the opportunities for credit unions’ growth in Maryland is 69.4% — which leads us to some key lending strategies to capitalize on these opportunities.

With a nearly 70% growth opportunity rate, for instance, credit unions in Maryland have ample possibilities to increase their consumer loan activity. This increase leads to capturing more quality and profitable loans: new members equal new money, which leads to deeper relationships and future business.

You can also capture new loans with existing members who have outstanding balances at other financial institutions – enticing them by asking them if they would like to lower their monthly payments on all loans that are not with the credit union. Auto loans and high-interest rate credit card debt are low-hanging fruit to target.

Other strategies include increasing loan yields, minimizing delinquencies and losses with risk-based lending management checklists/manuals, and maintaining a strong capital ratio. For example, a 1% increase in average loan yield adds $100,000 to the bottom line on every $10 million in a loan portfolio.

Appalachian Community Credit Union, for instance, executed many of these strategies and increased its consumer loan yield from 6.21% in Q1 2013 to 8.26% in Q4 2013.

As you can see, the proof is in the pudding here with these strategies – and the opportunities are certainly out there on which to capitalize. So the next time you are asking what you can do differently or better to ensure loan growth, profitability, and retention, remember these ideas for future growth and value that ultimately positions your credit union as a primary financial institution. Talk about long-term business activity for member attraction and retention; this is your ticket.

Celeste Cook

Celeste Cook

Celeste Cook is founder and President/CEO of cuStrategies, LLC, which provides strategic planning services, consulting services, and training programs to the credit union industry. She is also a keynote ... Web: Details

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