Lending At SECU: RBL - Risk-Based Lunacy? The Elephant In The Room...

   The "ELT" says: "What Elephant?"*

   * Hint: rhymes with mumbo-jumbo.

Lets get back to Lending 101! Remember we talked about making a loan isn't exactly brain surgery [link].  At a credit union, the goals of the borrower and the lender should be the same [link]. The credit union loan officer should seek only to make a sound loan which is of benefit to the member - and which will be repaid without hardship by the member.

A lending decision is based mostly on determining if the member is 1) willing and 2) financially able to repay the loan. That evaluation used to be called the "3 C's" - character, capacity, collateral. 

"Capacity" simply means having enough income to make the loan payment without hardship. "Collateral" is something of value (a car title, for example) which the CU can "take back" ("repossess" in the car example) to limit risk and potential loss, if the member fails to repay.  And first among equals is "Character", which is the lender's judgment of a borrower's willingness to repay the loan. 

As you know from just living, some people will always do what they promise, some folks never will. You want to lend to the "always wills" and avoid the "never wills". Simple as that and as we noted, not exactly brain surgery. But let me assure you, the ability to judge character is a unique skill, an intuition, a fine art, a knack which not all folks have.  A rare blend of intelligence, savvy, empathy, and compassion.  

Character judgement is greatly enhanced by another age old lending axiom: "KYC".  No sorry, you got that wrong; Colonel Sanders is "KFC"! "KYC" is the abbreviation for "Know Your Customer". The basic concept is that the more the loan officer knows about the borrower, the better the decision. Hard to argue with that idea hopefully.

As we've seen with the upsurge in loan losses and delinquency [link], the elephant in the room is that the highly regarded professionalism and effectiveness of lending at SECU appears to be collapsing. Lending  at SECU now seems plagued by insensible policies, poor decision making, and a failure to "KYC"!

 ✅ Tomorrow we'll take a look at 5 warning signals of questionable lending practices in the areas of:

1. Decisioning 
2. Unsecured
3. Mortgages
4. Bias
5. Opacity  ... "the d-u-m-b-o signals".

😎 Since you're now a trained lender; and, of course, intelligent, savvy, empathetic, and compassionate...lets see how you do on a few lending questions tomorrow! Okay? Stay tuned....

 

Okay!... I'm all ears!

SECU Board: Fiduciary Duty - Setting Financial Goals And Monitoring Performance.

  ... The SECU Boards approves the financial goals for the Credit Union. And, should monitor staff performance against those standards.

✅ Lets see how the Board and Executive Leadership Team (The ELT) are doing:

 

We talked in the last post [link] about the mis-performance in lending losses and delinquency which are SECU Board "Key Ratios". Three other key ratios also tell a costly story. 

But first remember, SECU has borrowed $5 billion from the Federal Reserve without a clear financial reason, other than profiteering. The effect of that borrowing is to increase SECU actual "assets" from @ $50 billion to $55 billion - which falsely "inflates" these ratios. Why? Because that $5 billion loan must be paid back to the Fed at the end of 2024. (The interest SECU paid on that Fed loan in the first quarter was $59,479,452!... which will be @ $240 million for all of 2024!)

 So, we need to adjust the assets down to the legitimate $50 billion before "figurin'" the real ratios:

1. Capital to Assets:  real ratio @ 11.1% not only above the Board approved 9% key ratio target, but even outside the Board approved range! If the Board had met its 9% target, an extra $1 billion could have been paid out to members via better rates on your savings accounts.
2. Expense to Assets: real ratio @ 2.35%, well above the SECU Board target of 2.00%, and not declining as inferred! Based on historical SECU expense levels of 1.85%, these extra operating expenses are costing you over $200+ million annually.
3. Asset Growth: The real "chuckler" in the bunch! The assets of SECU were $50.775 billion on March 31, 2023 and were $50.872 billion at March 32, 2024 - a growth of @$97 million over the last 12 months. That's a real growth rate of @ 2/10ths of a percent, not 10.04%! SECU members have actually withdrawn @10% of their deposits over the last "new/new" 3 years!
   
   ... why have "key ratios" if the Board and ELT are going to ignore them?