WASHINGTON (4/17/12)--The Credit Union National Association (CUNA) asked Fitch Rating Services to revise or reconsider a statement critical of credit union business lending that the ratings agency issued late last week, pointing out information about credit union lending that the statement's authors "may not have been aware" of in preparing their message.
"I would hope that you might consider revising or extending your remarks after reviewing this additional information," CUNA Chief Economist Bill Hampel said in an email to the statement's authors.
In preparing his comments, Hampel underscored that credit union member business lending (MBL) is a safe and sound activity and that pending legislation to increase the MBL cap includes provisions that allow only safe and measured growth.
He noted that to ensure that pending legislation does not increase risk to credit unions by lifting the MBL cap to 27.5%, both the House (H.R. 1418) and Senate (S. 2231) bills explicitly contain the following three provisions a credit union must meet to go beyond the current 12.25% cap. The credit union:
- Must have at least five years of experience making business loans;
- Must have been above 80% of the cap for at least four consecutive quarters; and
- Would be allowed to increase business lending by no more than 30% in any one year, under a tiered approach.
Hampel also reminded that credit unions are not novices to member business lending, with some credit unions having been engaged for decades.
To assuage any doubt regarding whether a shortage of small business credit has existed throughout the recession and its aftermath, Hampel cited the monthly survey results generated by the National Federation of Independent Business, which show a reading of negative 11 for availability of credit.
Hampel reiterated a CUNA point that the NFIP has also made: any time there is an increase in the supply of a product, small business loans in this case, users of that product will find more of it available, on better terms, and more of it will be consumed.
"In other words, small businesses would benefit from this bill," Hampel noted.
Hampel also warned to be wary of banking groups' "analysis" of the number of credit unions that are impaired by the current low lending cap.
In assessing the need for a higher MBL cap to further help small businesses, CUNA classifies as:
- "At the cap" all credit unions with MBL to asset ratios of 10% to 15%. For example, for a $100 million credit union with MBLs equal to 11% of assets, just four or five average-sized loans would put them over the cap. Credit unions in this group essentially have to eschew any new business, keeping their limited remaining cap authority available for existing member borrowers. There are about 140 such credit unions;
- "Approaching the cap" those credit unions with between 7.5% and 10% of assets in MBLs. On average, these credit unions will reach the cap in about two-and-a-half years at recent growth rates. There are about 170 such credit unions; and,
- "Feeling initial constraints of the cap" those credit unions with MBL to asset ratios of between 5% and 7.5%. At their recent fairly rapid growth rates, these credit unions too would be capped in about two-an- a-half years. There are about 210 such credit unions.
In total, these roughly 500 credit unions account for about 75% of credit union business loans subject to the cap and they have to progressively retard their business lending the closer they get to the cap.
To the Fitch writer's stated concern that smaller credit unions with limited resources might find it difficult to successfully compete in a larger business loan environment, Hampel reminded that MBL legislation would not require--nor would allow-- all credit unions, of all sizes, to ramp up business lending facilities.
"Any significant increase in business lending at credit unions would come only from those credit unions that already have extensive experience in business lending," Hampel said, and pointed out that National Credit Union Administration rules already require a credit union to use the services of an experienced individual (at least two-years) before even setting up a business lending program.
The CUNA communication, which was also distributed to the legislative directors of every U.S. House and Senate office, also noted that credit union member business loan net charge-off rates have been significantly lower than bank rates year-in and year-out for over a decade. In fact, CUNA said that since 1997, credit union member business loan net charge-off rates have averaged 0.23%, a figure that is one-fourth the 0.91% bank average over the same period.