Loan book growth continues to be a top priority for both community and industrial credit unions in an environment where declining investment returns are eroding expense to income ratios, according to a survey published today by RBK.
Over two-thirds of this year’s survey respondents said their credit union launched new products or services in the last 12 months and more than half (54%) collaborate to innovate and develop new products. As in previous years, the fastest growing loan types in 2021 were home improvement and car loans.
The findings are published in RBK’s tenth annual credit union benchmarking survey.
Commenting on the results, Ronan Kilbane, Audit & Business Advisory Partner with RBK Chartered Accountants said, “Our latest research shows that credit unions are highly alert to both the challenges and opportunities in the current environment. Priorities are being reset as declining investment returns and negative interest rates are eroding expense to income ratios. With inflation driving up wages, outsourcing of functions beyond internal audit and risk management looks increasingly likely. The departure of KBC and Ulster Bank from the Irish market is an opportunity for credit unions to collaborate, innovate and develop new products and services while growing their loan books and securing a sustainable future.”
- Loan book: 58% of this year’s survey respondents said loan book growth was better than expected in 2021 (down from 65% when compared to 2019). However there is a wide disparity between the highest and lowest growth rates in both community and industrial credit unions (a 55 percentage point gap between lowest and highest growth rates in community credit unions and a 19 percentage point gap in industrial credit unions).
- Interest Rates on Loans: The average rate of interest on loans within Community Credit Unions has fallen from 8.9% to 8.1% in 2021 and the rate earned by industrial credit unions has fallen from 7.4% to 6.7%. This is reflective of a change in the mix of loan products being offered within the sector.
- Marketing: Despite loan book growth being one of their biggest challenges, more than a third (34%) of this year’s survey respondents do not have a separate business development / marketing function. Management and boards need to question whether they are allocating sufficient resources to marketing to maximise their loan book growth.
- Human Resources: Difficulties recruiting and retaining staff in a competitive labour market along with the rising cost of living are driving wage inflation. 56% of credit unions surveyed increased wages last year, typically by about 2-3%, and 53% plan to increase wages in the next 12 months.
- Board effectiveness: Board members are undertaking a variety of education and training activities to enhance their knowledge and skills and improve effectiveness. One in 5 survey respondents rated their board ‘fully effective’ in 2021, up 10 percentage points when compared to 2019—a further 50% gave their board 4 out 5 for effectiveness.
- Risk Management: Not surprisingly, given the increase in cyber related threats, there has been a 9% increase in the number of credit unions who perceive IT and Cyber to be the biggest risk facing the credit union.
- Viability: With average expense to income ratios at 82% in community credit unions and 72% in industrial credit unions, it is not surprising that cost cutting, share caps, and new products and services are among the actions being taken to address these concerns.
- Member Shares: While member shares decreased for 22% of our survey respondents, almost twice as many (43%) reported a 5–10% increase in member shares in 2021. Various types of share caps are being used for asset and liability management purposes.
- Mergers: 37% of our survey respondents plan to merge in the next three years either by bringing in another credit union (31%) or by joining a larger credit union (6%).
To discuss any aspects of the RBK Credit Union Benchmarking Survey Results 2022, contact Ronan Kilbane, Partner.