“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 PresentationTRANSCRIPT
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“Learning From The Past, Preparing For The Future”
Wayne Nygren, President and CEO
Credit Union Central of British Columbia
October 2002
Presentation to the Credit Union Managers Association
of Ontario
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Agenda
A Vision: What the B.C. Credit Union System May Look Like in 2007
Six Key Trends– Descriptions– Implications for Credit Unions
Checklist: Strategies to Consider Questions
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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
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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
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What The System May Look Like in 2007
Finally, we’ll be missing many familiar faces at Central’s 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.
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Key Trends
1. Consolidation
2. Commoditization
3. Regional Economic Factors
4. Technology/Channel Conflicts
5. Competition
6. Human Resources
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Key Trend #1 - Consolidation
Retail Credit Unions Service Providers
– Centrals
– System Affiliates
– Other Suppliers
Competitors
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B.C. Credit Union Trends(Number of Credit Unions)
-
20
40
60
80
100
120
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
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Following Current Trends
-
200
400
600
800
1,000
1,200
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
Ave
rage
Ass
ets
per C
redi
t Uni
on
Ave. Assets/CU Average of Smallest 50% Average of Largest 50%
Current Median Asset Size is $100 million
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Credit Union Evolution (By Asset Size)
0
5
10
15
20
25
30
35
40
45
50
< $50Mill $50 - $100Mill
$100- $250Mill
$250- $500Mill
$500 Mill- $1Bill
> $1 Bill
Dec-96 Jul-02
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Credit Union Consolidation
Various models of consolidation– Mergers
– Alliances
– Services Organizations
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Centrals and System Affiliates
OPCO/National Central Project Sunrise/Genesis Credential/CUMIS/Co-op Trust Regional credit unions providing
regional support services Interprovincial (C-8) affiliations National Credit Union
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Other Suppliers and Competitors
Credit unions provide an attractive market to external suppliers
Some suppliers provide the flexibility to brand locally
Front-line competitors could become back-office collaborators
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Analysis
Wide separation in scale, scope and service needs between large and small credit unions
More choice in service providers
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Potential Implications for Credit Unions
The “credit union brand” may be difficult to recognize given the system’s diversity
An overwhelming variety of supplier choices
Some credit unions may begin to feel that they are “paying twice” for centrally provided services
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Key Trend # 2 - Commoditization
Reduced earnings from margin business Off-balance sheet activity Asset mix diversification
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Assets (“Average” B.C. Credit Union Perspective)
Some credit unions now have off-book asset portfolios equivalent to 50% of their on-book assets
Cycling of assets requires increased operating efficiency
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Operating Efficiency(Average B.C. Credit Union, Cents Required to Earn a Dollar)
50
55
60
65
70
75
80
85
90
95
100
1993 1994 1995 1996 1997 1998 1999 2000 2001
Cen
ts
Canadian Chartered Banks
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Potential Implications for Credit Unions
Movement toward higher yielding on-balance sheet assets and more activity off-book with commodity products
Greater degree of commercial activity Smaller balance sheets may be more
productive (more off-balance) Higher risk profile on-balance
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Key Trend #3 – Regional Economic Factors
Movement toward self and under employment will accelerate in rural B.C.
Slower economic growth in rural B.C. from traditional sources
Growth in the “retirement industry” in various regions of the province
Shifting economic base in rural B.C.
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Potential Implications for Credit Unions
Increased demand for small business services in rural/smaller credit unions
Reduced levels of excess liquidity Potential for increased delinquency and
properties being held-for-resale in rural B.C.
Role for community activism/leadership from credit unions
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Key Trend #4 - Technology
Member Behaviour Relentless Pace Expertise Investment Technology as “Enabler”
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Member Behaviour
Members continue to adopt on-line banking options, however, this has not resulted in the expected decline in branch based services
Creates potential for channel conflict in terms of credit unions’ ability to support all delivery channel options
Features shopping, using on-line capability, is now the norm (the Global Village)
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Relentless Pace and Expertise
How can the typical credit union management team dream of keeping pace with the ongoing advances in technology?
Credit unions require information technology expertise
There is the sense that opportunities are being overlooked
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Investment
Information technology systems are one of the highest cost categories for credit unions. Costs within most Peer Groups are increasing
Are we investing wisely? Are today’s technology investment decisions aiding or hindering our future functionality?
Are technology investments being driven by user behaviour or by technologists?
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Data Processing Expenses
0.00%0.05%0.10%0.15%0.20%0.25%0.30%0.35%0.40%0.45%0.50%
PG1 PG2 PG3 PG4 PG5 PG6 PG7 PG8
Dat
a Pr
oces
sing
as
a P
erce
ntag
e of
Ass
ets
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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Technology as Enabler
Many 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
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Potential Implications for Credit Unions
Multiple channel investment will become increasingly difficult for all credit unions to afford
Increased investment in information technology education will be required, particularly at leadership levels within credit unions
Increased potential for joint ventures between credit unions
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Key Trend #5 - Competition
Alternative Options:– Lower Price
– Wider Selection
– Superior Service
Member Segmentation Market Differentiation
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Alternative Options
New 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
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Member Segmentation andMarket Differentiation
Recognizing that it is extremely difficult to compete in broad markets, many credit unions are developing specific niche strategies
Operating in a narrow niche allows a credit union to differentiate itself in comparison to competitors – however, this strategy is not without risk
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Potential Implications for Credit Unions
As competition increases, credit unions will need strong local brands
Sustainable competitive advantage must be identified and articulated
The competitive advantage must have broad appeal within member segments
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Key Trend # 6 - Human Resources
Leadership Demographic Trends Competitive Factors Training and Development
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Leadership
Smaller 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
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Demographic Trends
Is it coincidental that many credit union mergers take place near the time of CEO retirement?
45% of the B.C.system’s managers are over the age of 50
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B.C. Credit Union Employee Age Distribution
0%
5%
10%
15%
20%
25%
30%
<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64
Management Staff Non-Management Staff All Employees
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Competitive Factors
Credit unions advise that they are finding it difficult to find good specialty staff. Many people being recruited are juggling multiple job offers creating bidding wars
Credit unions in the Lower Mainland churn employees amongst themselves
Banks and investment houses are stalking our talented wealth management folks
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Training and Development
Many 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
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Potential Implications for Credit Unions
Training costs within credit unions will accelerate rapidly as the aging management employee base retires
Sustainable training and development strategies will need to be implemented
Would benefit from broad-based succession planning
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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
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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
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A Vision of the B.C. Credit Union System in 2007
Finally, we’ll be missing many familiar faces at Central’s 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?
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Checklist
1. Develop Alliances
2. Ensure stable sources of support service (i.e. OPCO and TradeCo)
3. Build non-financial revenue
4. Ensure that syndication processes are efficient
5. Maintain strong commercial risk management practices
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Checklist (continued)
6. Invest in a strong, differentiated local/ regional brand
7. Use technology as an enabler and ensure that the credit union is technologically “literate”
8. Ensure sustainable human resource development and succession plans
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Thank You!