Managing Balance Sheets Through Uncertain Times
April 13, 2020
As COVID-19 continues to sweep through communities, more and more pandemic contingency plans are activated. It’s a challenging time for all, with many businesses struggling to keep operations running smoothly — including credit unions.
Catalyst Strategic Solutions, a subsidiary of Catalyst Corporate Federal Credit Union, can help credit unions navigate these uncharted waters. The Strategic Link partner is a wholesale cooperative financial institution, serving nearly 1,400 credit unions nationally with innovative core financial services and superior back-office support.
Below, Catalyst’s Managing Principal, Mark Debree, outlines ways credit unions can protect their balance sheets while supporting members’ unique needs through this difficult situation.
Credit unions, like all businesses, are being impacted as economic activity declines. And as the country moves into uncharted territory, credit union members will be among those impacted by uncertainty.
But in troubled times, credit unions shine. After all, it was during the Great Depression that the nascent Credit Union Movement really took hold, earning support by operating under the “People Helping People” philosophy.
Credit unions are already doing so much – they’re aligning toward member needs by promoting skip-a-payment loan programs and proactively working with hard-hit members to pass on a payment or two, adding those payments to the end of the loan terms. These proactive measures are helping both the members and the credit unions. Members are heard with compassion and helped during a trying time, while credit unions are benefitting from building member loyalty and working to ensure loan performance.
From a balance sheet strategy standpoint, in times of uncertainty, building liquidity is typically prudent. However, with interest rates dropping, credit unions are seeing liquidity as more than just cash balances. They are looking to securities that are deemed highly liquid. The importance of these securities is that they are relatively short in maturity term, and markets are deep with significant volume, meaning credit unions can get in and out of the securities with minimal price impact, if needed. Also, during critical times such as these, the rate of return is generally superior to cash balances. If cash is king in times of uncertainty, then high-quality liquid securities are queen.
In the loan portfolio, members are taking advantage of the drop in interest rates to refinance their mortgages. Credit unions know this and are getting ahead of the trend by proactively helping members refinance. This enables credit unions to keep loans on the balance sheets and earn some fee income during the process. The alternative? Watching the loans go somewhere else.
Catalyst Corporate Federal Credit Union and Catalyst Strategic Solutions are ready to help credit unions stand strong through the COVID-19 crisis. To learn more, visit Catalyst’s webpage or contact Jason Smith, Vice President of Strategic Resources, at 208.286.6794.
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