Press "Enter" to skip to content

2019: A Year for Core Lending Principles

BY MICHAEL ORAVETZ

2018 proved to be an eventful, and profi table, year for most credit unions. Amidst heightened volatility from domestic and international  concerns, credit union performance reached post-crisis highs over the year (Figure 1). Now, in early 2019, many institutions are asking  themselves what’s next? Searching for creative ways to maintain and grow profitability in 2019 is a task at the top of many financial  executives’ to-do lists. When faced with uncertainty like this, it’s usually a good idea to go back to tried-and-true core lending principles:  asset pricing discipline, marginal return analysis, and leverage strategies.

1

For many years now, securities portfolios have dwindled as a percentage of average assets as institutions focus on lending. This allocation  to credit-riskier assets has led to higher profi ts. Figure 2 highlights the change in balance sheet composition starting in 2011. As of Q318,  loans-to-assets sits at over 70%, while securities-toassets was below 15% for the industry.

2

Despite margin expansion throughout 2018, fears over plateaued earnings remain real. Competition has heightened due to a maturing  credit cycle, a continued rise in short-end rates, and a fl at yield curve putting pressure on low-cost core funding retention. Regardless,  successful lenders abide by a few key tenets independent of the environment.


Want to keep reading? This content is for subscribers only.

Log In Register


Comments are closed.

Mission News Theme by Compete Themes.
Skip to toolbar