Wednesday, March 3, 2010

Goose Egg

The March 3rd CUNA News quotes that the member business loan cap was a concern for Nikkei CU CEO Erick Orellana. According to CUNA News, Orellana said that his credit union is currently up against the 12.25 percent of assets member business loan cap.

I went to the credit union’s call report. This $89.2 million credit union reported zero member business loans at the end of 2009.

That’s right -- a giant goose egg!

The credit union, however, does report $10,560,265 in purchased business loans or participation interests to nonmembers. These nonmember business loans account for 36.5 percent of the credit union’s $28.9 million loan portfolio. The problem confronting this so-called credit union is that it cannot buy or participate in more loans to nonmembers.


  1. Why is Nikkei CU a "so-called credit union?"

  2. I was using the term "so-called" to make the point that this CU seems to not be providing much credit to its members. Members savings were being used to fund loans that were not made to members.

    I know the CUs will say these loans were made to members that belong to other credit unions.

    We've had that debate and we will have to disagree.

  3. Nikkei CU has about a 50% loan to share ratio and are well capitalized at 9.8%. Further, with a net charge-off rate of about 6 bps, they aren't having asset quality issues with their loan portfolio. This data suggests to me that they are willing an able to make loans, but are likely not facing a demand. I don't know this for certain, but I'm also not going to make warrantless claims about their status as a "so-called credit union."

    Nikkei still needs to provide a decent rate to its members, and investments aren't quite cutting it right now. So, they can participate in MBLs with other CUs, allowing the originating CU to provide more small business credit, and helps Nikkei provide better rates on deposit products. The cap is still prohibiting Nikkei from increased participation, and it also hurts the credit unions that have a demand for business credit but cannot lend because participating credit unions are unable to help free up room on their balance sheet.

  4. If you adjust the loan to deposit ratio to count only loans to members, the loan to deposit ratio for this credit union drops to 31.46 percent.

  5. Granted, which even further suggests a lack of demand for loans, which increases the importance of investments and participations.

  6. This also demonstrates a credit union who wants to gain exposure to MBL but doesn't have the required expertise on staff to do it themselves. I say bravo to them for knowing that they want the MBL exposure on their balance sheet, but realizing that they can't do it themselves.



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