2020 has been an unprecedented year for businesses and financial institutions around the globe. Nearly everyone's bottom line has been affected by the pandemic, and credit unions, like all businesses, have had to be agile and adopt new practices in order to survive.
One area that has always been crucial for the profitability of credit unions (and now even more so) is lending. Credit unions that sustain profitable and healthy lending practices have a leg up on the competition and will be around for a while, and those that don’t, will run the risk of dying a slow death and ultimately weighing out their merger options.
Fortunately, there have been many new technological developments that can help CU’s offer their members easy access to competitive loans. However, before credit unions decide which technologies and tools to use, it’s a good idea for credit union executives to take a look at a few specific lending ratios in order to determine if their current lending tactics are successful or not.
Lending ratios for Credit Unions
Analyzing and understanding certain lending ratios is vital for credit unions to know where they are succeeding and, perhaps more importantly, where they are failing when it comes to lending. Here are three important metrics to determine if your credit union’s lending strategies are working:
- Loan originations per employee. If members aren’t borrowing from your credit union, it’s going to be tough to survive in this market. CU executives who suspect lending practices aren’t up to par should have a look at the amount of loan originations per employee to determine if human resources are being used efficiently. When loan originations per employee are low, it may be time to reevaluate your strategy and check to see if your loan officers have the proper tools necessary to streamline the lending workflows and do their job efficiently.
- Average member relationship. This ratio is determined by dividing the sum of outstanding loans and total shares by the credit union’s total members. One of the best ways to raise this number is through mortgage lending, which tends to generate loans with longer term lengths and more profitability. Certain technologies, such as e-Signature or in-branch signature capture, can help your loan officers process loans quickly and efficiently, while also making the experience less stressful for your members.
- Loan-to-share. The loan-to-share ratio measures a credit union's ability to lend and has implications for a CU’s long-term sustainability. The number is determined by dividing the total amount of outstanding loans by the total amount of share deposits. Since credit union's make most of their profits from loans, it’s important to pay attention to this number. When a credit union’s loan-to-share ratio is high, so is their profit. However, loan-to-share ratios can also shed some light on the amount of risk a CU is undertaking. An abnormally high loan-to-share ratios can draw auditors’ attention and put CU’s in a liquidity crunch. That is why it is so important for CU executives to be aware of their credit union’s loan-to-share ratio, and to use efficient loan origination systems that offer members easy-access to their competitive loans.
Technological solutions for your CU
Many credit unions are turning to technological solutions to boost the efficiency of their lending operations. FLEX has become a reliable solution for credit unions of all sizes. Having its own built-in LOS along with API connection to industry partners such as CU Direct or Meridian Link, FLEX provides a platform for modern, creative lending practices like mobile lending, mortgage servicing, and automated lending decisions.
If you’ve evaluated your credit union lending ratios and determined that there’s room for improvement, FLEX credit union core software may be able to help you get where you need to be.
