Northwest Credit Unions’ MBL Programs Could Improve if Congress Raises Cap

With President Obama’s announcement that job creation will be the administration’s next priority, the credit union industry seized the opportunity to push for legislation making more member business loans possible.

Financial data analyzed by the Northwest Credit Union Association (NWCUA) indicates well managed lending practices by many northwest credit unions have been successful; the opportunity to grow the lending category is difficult with the sputtering economy and regulatory limits on lending.

Just after Obama’s announcement, Credit Union National Association (CUNA) President/CEO Bill Cheney urged him to ask Congress to enact legislation raising the cap on MBL programs to as much as 27.5 percent of assets.

The sputtering economy is seen at northwest credit unions as member business lending continues on a slow trajectory.

Steve Kenny, President/CEO of Columbia Community Credit Union, one of the region’s top small business lenders, says, “We are seeing the economy still very cautious but with a noticeable uptick in lending for small businesses.”

Columbia Credit Union booked $5 million in new business loans in July and says the pipeline is starting to rebuild. But he notes that demand is coming from two distinct camps.

“There are two spectrums,” Kenny noted. “It is either the lower quality business operator who comes in or the very good operator. We can help those quality operators who see the market recovery on the horizon and want to expand their already successful operation to grab new market opportunities.”

“The lower quality operator can’t meet the criteria. Frankly, there really is no category in between,” Kenny said.

The Northwest Credit Union Association’s analysis of first quarter data from Highline Financial, a division of Thompson Reuters, indicates impressively strong performance in the category by Spokane Teachers Credit Union (STCU) and SELCO Community Credit Union in Eugene.

Both credit unions stressed that a disciplined, highly experienced lending management team and infrastructure are critical to ensure program success and compliance.

STCU’s program has a track record nearly nine years long in commercial real estate, with a strong emphasis on apartment lending.

“I am an evangelist for making sure we only get into the right real estate loans,” said Scott Adkins, Vice President of Lending for STCU.

He noted apartment buildings are sound investments in the Spokane area, as well-managed rentals are in demand.

Clark County continues to have one of the highest unemployment numbers in the state and Kenny noted that there are a lot of foreclosures that are further depressing the housing market as a result.

“We don’t see any real recovery in this area,” he added

Columbia Credit Union was recently named the top small business lender for the Portland/Vancouver region by the Small Business Administration.

Down on the south coast of Oregon, Chetco Federal Credit Union CEO Diane Johnson sees a very flat economy with no sign of recovery anytime soon.

Demand for home construction is virtually non-existent as developers can’t pencil a profit as valuations continue to decline. Johnson says she does not see an uptick in the local housing market until the latter part of 2013.

She does note that retail businesses are holding their own.

“People just can’t go to the next town very easily in this region and so that helps sustain local business activity,” Johnson said.

According to her, Chetco had a total of 479 MBL’s through the first quarter of 2011 valued at almost $133 million.

Johnson expects interest rates to stay low for an extended period and that can help provide some stability for the economy until signs of growth return.

“Demand is not as heavy as I would expect but I think that reflects the caution everyone is experiencing about the economy,” she said.

Nationally, credit unions continue to increase small business lending compared to banks. Since December of 2007 bank small business lending has declined by 5 percent while credit union lending has increased 38 percent, according to data released by the Credit Union National Association.


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Posted in Compliance News, Economy.