“Learning From The Past, Preparing For The Future”

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Presentation to the Credit Union Managers Association of Ontario. Learning From The Past, Preparing For The Future. Wayne Nygren, President and CEO Credit Union Central of British Columbia October 2002. Agenda. - PowerPoint PPT Presentation

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  • Learning From The Past, Preparing For The Future

    Wayne Nygren, President and CEOCredit Union Central of British ColumbiaOctober 2002Presentation to the Credit Union Managers Association of Ontario

  • AgendaA Vision: What the B.C. Credit Union System May Look Like in 2007Six Key TrendsDescriptionsImplications for Credit UnionsChecklist: Strategies to ConsiderQuestions

  • In 2007 there will be less than 40 credit unions in the province. Half of them will have, on average, less than $85 million in assets, while the other half will be operating with, on average, more than $1.1 billion in assets.

    Credit union balance sheets will look much different than they do today. Commercial lending will represent a more significant percentage of overall assets (e.g. 30% - 40%). And, balance sheet growth will be leveling off as an increasingly large percentage of activity takes place off-book.

    What The System May Look Like in 2007

  • Rural credit unions will be working with their local communities through a prolonged downturn as regional economies shift from resource based to self-employment, small business and tourism. The retirement industry will also be flourishing in many regions of our province as the boomers begin settling for their retirement.

    Credit unions with higher than average operating efficiency ratios will be forced to make decisions about which delivery channels they can support and these decisions will drive how they differentiate themselves in local markets. Meanwhile, competitors have continued to advance in areas of price, variety and service.

    What The System May Look Like in 2007

  • What The System May Look Like in 2007Finally, well be missing many familiar faces at Centrals Annual and Semi-Annual General Meetings, as 45% of our system leaders will either have retired, or will be in the midst of planning to do so.

  • Key Trends ConsolidationCommoditizationRegional Economic FactorsTechnology/Channel ConflictsCompetitionHuman Resources

  • Key Trend #1 - ConsolidationRetail Credit UnionsService ProvidersCentralsSystem AffiliatesOther SuppliersCompetitors

  • B.C. Credit Union Trends(Number of Credit Unions)

  • Following Current TrendsCurrent Median Asset Size is $100 million

  • Credit Union Evolution (By Asset Size)

  • Credit Union ConsolidationVarious models of consolidationMergersAlliancesServices Organizations

  • Centrals and System AffiliatesOPCO/National CentralProject Sunrise/GenesisCredential/CUMIS/Co-op TrustRegional credit unions providing regional support servicesInterprovincial (C-8) affiliationsNational Credit Union

  • Other Suppliers and CompetitorsCredit unions provide an attractive market to external suppliersSome suppliers provide the flexibility to brand locallyFront-line competitors could become back-office collaborators

  • AnalysisWide separation in scale, scope and service needs between large and small credit unionsMore choice in service providers

  • Potential Implications for Credit UnionsThe credit union brand may be difficult to recognize given the systems diversityAn overwhelming variety of supplier choicesSome credit unions may begin to feel that they are paying twice for centrally provided services

  • Key Trend # 2 - CommoditizationReduced earnings from margin businessOff-balance sheet activityAsset mix diversification

  • Assets (Average B.C. Credit Union Perspective)Some credit unions now have off-book asset portfolios equivalent to 50% of their on-book assetsCycling of assets requires increased operating efficiency

  • Operating Efficiency(Average B.C. Credit Union, Cents Required to Earn a Dollar)Canadian Chartered Banks

  • Potential Implications for Credit UnionsMovement toward higher yielding on-balance sheet assets and more activity off-book with commodity productsGreater degree of commercial activitySmaller balance sheets may be more productive (more off-balance)Higher risk profile on-balance

  • Key Trend #3 Regional Economic FactorsMovement toward self and under employment will accelerate in rural B.C.Slower economic growth in rural B.C. from traditional sourcesGrowth in the retirement industry in various regions of the provinceShifting economic base in rural B.C.

  • Potential Implications for Credit UnionsIncreased demand for small business services in rural/smaller credit unionsReduced levels of excess liquidityPotential for increased delinquency and properties being held-for-resale in rural B.C.Role for community activism/leadership from credit unions

  • Key Trend #4 - TechnologyMember BehaviourRelentless PaceExpertiseInvestmentTechnology as Enabler

  • Member BehaviourMembers continue to adopt on-line banking options, however, this has not resulted in the expected decline in branch based servicesCreates potential for channel conflict in terms of credit unions ability to support all delivery channel optionsFeatures shopping, using on-line capability, is now the norm (the Global Village)

  • Relentless Pace and ExpertiseHow can the typical credit union management team dream of keeping pace with the ongoing advances in technology?Credit unions require information technology expertiseThere is the sense that opportunities are being overlooked

  • InvestmentInformation technology systems are one of the highest cost categories for credit unions. Costs within most Peer Groups are increasingAre we investing wisely? Are todays technology investment decisions aiding or hindering our future functionality?Are technology investments being driven by user behaviour or by technologists?

  • Data Processing Expenses

  • Technology as EnablerMany credit unions are adopting the view that technology is not strategic in itself, it is an enabler allowing the institution to meet other,more strategic goals, such as strengthened member relationships and creating competitive convenience

  • Potential Implications for Credit UnionsMultiple channel investment will become increasingly difficult for all credit unions to affordIncreased investment in information technology education will be required, particularly at leadership levels within credit unionsIncreased potential for joint ventures between credit unions

  • Key Trend #5 - CompetitionAlternative Options:Lower PriceWider SelectionSuperior ServiceMember SegmentationMarket Differentiation

  • Alternative OptionsNew competitors continue to emerge and existing competitors continue to enhance services Many credit union members are finding lower priced and/or wider selection and/or superior service options to credit unions

  • Member Segmentation andMarket DifferentiationRecognizing that it is extremely difficult to compete in broad markets, many credit unions are developing specific niche strategiesOperating in a narrow niche allows a credit union to differentiate itself in comparison to competitors however, this strategy is not without risk

  • Potential Implications for Credit UnionsAs competition increases, credit unions will need strong local brandsSustainable competitive advantage must be identified and articulatedThe competitive advantage must have broad appeal within member segments

  • Key Trend # 6 - Human ResourcesLeadershipDemographic TrendsCompetitive FactorsTraining and Development

  • LeadershipSmaller credit unions will continue to require hands on general practitioners who can assume a multitude of tasks. It will become increasingly difficult to replace these skill sets Larger credit unions will require managers that are strong technically, and have the added ability of ensuring motivational leadership to their large employee bases

  • Demographic TrendsIs it coincidental that many credit union mergers take place near the time of CEO retirement?45% of the B.C.systems managers are over the age of 50

  • B.C. Credit Union Employee Age Distribution

  • Competitive FactorsCredit unions advise that they are finding it difficult to find good specialty staff. Many people being recruited are juggling multiple job offers creating bidding warsCredit unions in the Lower Mainland churn employees amongst themselvesBanks and investment houses are stalking our talented wealth management folks

  • Training and DevelopmentMany credit unions recruit trained commercial lenders from banks rather than train or develop their own in-house. This is not perceived to be a sustainable strategy

  • Potential Implications for Credit UnionsTraining costs within credit unions will accelerate rapidly as the aging management employee base retiresSustainable training and development strategies will need to be implementedWould benefit from broad-based succession planning

  • In 2007 there will be less than 40 credit unions in the province. Half of them will have, on average, less than $85 million in assets, while the other half will be operating with, on average, more than $1.1 billion in assets.

    Credit union balance sheets will look much different than they do today. Commercial lending will represent a more significant percentage of overall assets (e.g. 30% - 40%). And, balance sheet growth will be leveling off as an increasingly large percentage of activity takes place off-book.

    A Vision of the B.C. Credit Union System in 2007

  • Rural credit unions will be working with their local communities through a prolonged downturn as regional economies shift from resource based to self-employment, small business and tourism. The retirement industry will also be flourishing in many regions of our province as the boomers begin settling for their retirement.

    Credit unions with higher than average operating efficiency ratios will be forced to make decisions about which delivery channels they can support and these decisions will drive how they differentiate themselves in local markets. Meanwhile, competitors have continued to advance in areas of price, variety and service.

    A Vision of the B.C. Credit Union System in 2007

  • A Vision of the B.C. Credit Union System in 2007Finally, well be missing many familiar faces at Centrals Annual and Semi-Annual General Meetings, as 45% of our system leaders will either have retired, or will be in the midst of planning to do so.

    Given this vision of the future, what strategies should credit unions be considering?

  • ChecklistDevelop AlliancesEnsure stable sources of support service (i.e. OPCO and TradeCo)Build non-financial revenueEnsure that syndication processes are efficientMaintain strong commercial risk management practices

  • Checklist (continued)Invest in a strong, differentiated local/ regional brandUse technology as an enabler and ensure that the credit union is technologically literateEnsure sustainable human resource development and succession plans

  • Thank You!

    3:30 pm

    Pearl Graham thanks all participants and adjourns the session.