Wall Street turmoil is credit unions' "golden opportunity"

VANCOUVER, Wash. — Bad news on Wall Street is overshadowing the good news for credit unions and their customers, says Dave Colby, chief economist with CUNA Mutual Group.

Credit unions have made it midway through 2008 without breaking a sweat, and in Washington, these member-owned bank alternatives may be even better positioned for growth than their peers across the nation, he said.

Colby, whose employer provides support services to credit unions and financial cooperatives across the globe, spoke to more than 800 Washington credit-union leaders at their annual meeting here this week.

Tough times are ahead for the nation's economy, Colby predicted, but that just means slower growth — not losses — for traditionally conservative credit unions.

"We have a golden opportunity right now," Colby said. "Your members are being buffeted by the talking news heads, but we know our capital. We can protect it.

"Financial viability is what credit unions are all about."

In two particular areas — savings and loans — the leaders of credit unions should maintain a conservative focus on customer needs and the bottom line, he said.

Historically, consumers invest in the stock market when stocks are climbing and sock cash away when stocks drop. That means credit unions have a chance to attract new members to savings accounts right now, Colby said.

But it will be tough, because overstretched banks are offering unprofitable high-interest savings and certificate-of-deposit accounts to drum up the cash they need.

Credit unions won't be able to compete on rates. Instead, they'll have to trade on their conservative approach to money to draw in customers worried about big banks.

Colby projects that credit-union assets will grow at an annual rate of about 6.6 percent through the next five years, with Washington state institutions possibly faring better than average. But to fuel that growth, credit unions will have to seek new members, especially as their current members age and reach retirement.

"You're going to have to tweak your strategies, let more members know you're there, let more members know you're saving and sound," he said.

Credit unions also need to watch their loan portfolios carefully, Colby said.

About 54 percent of all credit union loans are secured by real estate, he said.

Underwriting standards have typically been conservative, but with home values down and likely to fall further, there are still some risks.

"Home-equity lines of credit may not have equity behind them right now," he said.

Washington has been less hard hit by the housing downturn, but in states like Florida, where home values have declined the most, some credit unions are paying customers $100 to close their home-equity credit lines.

Despite the risks, however, Colby forecasts that credit-union loans will grow at an annual rate of 6.5 percent in the coming year — down from Washington's current 11.3 percent loan-growth rate.

"There is going to be tremendous loan demand," Colby said.

Credit unions could not only weather the downturn, but could play an important role in keeping Washington strong. Careful lending practices, a focus on savings, attention to members and long-term planning should define Washington's credit unions now and for years to come, Colby said.