the third largest auditor of credit unions in the country, recognizes
the importance of identifying and addressing key issues impacting
credit union industry. Their staff have not only worked in the credit
union and financial services industry, but have been providing auditing
and consulting services to credit unions for over 50 years. The
credit union specialists at CG have identified the following ten
issues that we believe will be impacting credit unions in the coming
The credit union
industry is not alone in this category. All companies are continually
searching for qualified, competent individuals and this makes competition
for key personnel more difficult. Credit unions also face the challenge
of training key staff to ensure that future credit union leadership
will be available. Questions that management is asking about their
- Is the quality,
efficiency and skill competency level of our personnel improving?
- What skills
and core competencies will our employees need in the future?
- Are the skill
levels and competencies in existing key management positions sufficient
to provide the credit union leadership and management we will
need in the future?
- Will our
training and education programs advance our personnel to the skill
level and competencies that we will need?
Tips to recruiting
and retaining key employees
- Develop an
employee retention program
- Monitor employee
- Develop employee
retention or satisfaction surveys
how employees think and feel about their jobs
- Involve multiple
interviewers when looking at candidates and related interview
questions to the client's potential job
compensation and fringe benefits programs for competitiveness
- Review employee
training and advancement programs
- Develop employee
evaluation, goal-setting, counseling and mentoring programs
of a credit union depends on its vision of what the organization
can become, a mission that makes sense (and that can be remembered
by everyone) and strategies for the organization to build on its
strengths and mitigate its weaknesses.
are developing processes that envision what their credit union will
look like in the future (3 to 7 years from now) in terms of asset
size, services and products offered, delivery systems, markets,
competition, and technology requirements. Strategic planning is
a systematic process that defines management's course in assuring
that the credit union continues to exist and provides a framework
and vision for the credit union's future direction. It is important
that the strategic plan covers a reasonable time frame or span into
the future. The plan normally ranges between 3 and 7 years, with
revisions annually or, at a minimum, every two years. The plan's
scope needs to include all appropriate criteria, including target
markets, resources, technologies which incorporate all of these
areas into the final strategic/visioning plan. The following diagram
indicates typical time frames for each of the credit union's individual
3. Risk Assessment
aware of risk levels in your credit union and how the exposure to
various risks is changing i.e., increasing or decreasing, can help
management and board of directors devise plans and strategies to
maintain risk at a tolerable level. Many credit unions are performing
semi-annual and annual assessments of exposure to risk of loss.
A formalized assessment of exposure of loss generally includes the
following risk areas:
rate risk - the risk that changes at market rates will adversely
affect credit union profitability and capital
- Credit risk
- risk of not recovering amounts loaned or invested
risk - risk that your credit union will be unable to fund member
loan demand and share withdrawals without adversely affecting
profitability or capital.
risk - may include areas such as the risk of fraud, embezzlement,
self-serving decision making and conflicts of interest, lack of
planning and due diligence, poor decision making processes and
not effectively understanding the risk and returns of new products
and services, technology and facility investments, and the like.
may include insufficient or inappropriate products, inadequate service
delivery systems, inadequate or incompetent personnel and related
training and advancement programs, and inadequate volunteer training
and Maintenance of Capital
unions are experiencing strong profitability, several credit union's
profitability will be challenged by a variety of factors impacting
their bottom line, including decreasing net interest margins, increasing
compensation, fringe benefits and training costs, increased technology
spending, the need for additional brick and mortar, ATM's delivery
systems and the need to provide competitive member products and
services that are not high-profit margin items.
Collections and Related Areas
and related charge-offs in most cases are at an all-time low level,
many credit unions have added substantial credit risk to their loan
portfolios and therefore, will experience increased delinquency
charge-offs and related increases in their allowance for loan losses
as a result. Credit unions have been experiencing substantial loan
growth due to consumer confidence in credit unions, a high level
of service, and the competitive interest rates. The offering of
new lending products such as indirect lending and leasing, sub-prime
lending, risk-based pricing, leasing programs and relationship pricing
has also added to loan demand. Changes in the size and mix of loan
portfolios and the possibility of a decline in the general economy
will make management's evaluation of the adequacy of the allowance
for loan losses a greater challenge than in the past.
99-CU-12 emphasizes the importance of interest rate risk management.
The letter focuses on mortgage-related assets because of their longer
duration and the impact that these loans may have on interest rate
risk. This letter indicates that the majority (64%) of all real
estate loans held by credit unions are fixed rate, and that this
percentage has gradually increased since 1990. Additionally, credit
unions with substantial concentrations in fixed rate mortgages is
also at ''historic highs.''
NCUA will evaluate
the effectiveness of a credit union's risk management process relative
to the amount of the credit union's potential balance sheet risk
and capacity to absorb such risk. They further describe in detail
major balance sheet risk and an outline of the interest rate risk
management process. The letter also includes the need for asset
liability management and investment policy reviews and the inclusion
of specific procedures for managing the credit union's interest
rate risk and the type of risk analysis management should conduct.
At a minimum, policies should indicate how much interest rate risk
the credit union's balance sheet can accommodate in relation to
its capital position. The letter further discusses various methods
credit unions have available to measure interest rate risk and provides
examples of discounting future cash flows, a basis for much of asset
liability management analysis.
A number of
proposed and recently finalized Rules and Regulations will impact
credit unions in 2001. Prompt Corrective Action of the Regulations
impacting the organization of federal credit unions, Risk-based
net worth requirements, Security programs and guidelines for safeguarding
member information, Other privacy regulations relating to the protection
and confidentiality of member information, potential regulatory
flexibility and exemptions, leasing, privacy of consumer financial
information, streamlining processes for adding Predatory lending
issues, E-signature legislation, bankruptcy legislation are a few
of the issues to be addressed
Controls and Member Service Delivery Systems
With the rapid
expansion of technology, the speed of service and product delivery
expected by members is increasing at a dramatic rate. Service delivery
structures including MSR, FSR, and other Personalized Service concepts
improve the efficiency and effectiveness of service to members;
however, they oftentimes result in internal control deficiencies.
Traditional internal control systems i.e., segregation of duties
and other dual control systems, are often inappropriate with present
service delivery systems. The result is the a change in oversight
procedures, including internal audit services, quality assurance
reviews and other automated reviews of transactions after their
completion as opposed to controls being placed in the origination,
processing and disbursal levels of the control system.
of Membership Issues
credit unions has grown at a fairly modest rate for the past decade.
Federally insured credit unions have generally had annual membership
increases in the 2%-3% range. Federally chartered growth has more
recently remained flat due in part to conversions from Federal to
State charters in some regions. Credit unions are assessing their
present fields of membership to assess potential rates of growth
in the future, and examining the demographics, income levels, lifestyles
of their present membership to help predict who the future members
will be and the services and products that they will demand.
time becoming a higher priority, it is more difficult to find qualified
members who are willing to dedicate their time to serve as volunteers
on the Board of Directors, Supervisory Committees, and other Committees
of the credit union. Time commitments, potential liability, complexity
of credit union operations and the need for volunteers to stay current
and understand operations, including technology and product alternatives
put a larger challenge on the industrys' backbone i.e., volunteerism.
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