Credit Union Seminar

Working Towards a Viable Business Model

Wednesday 1 June 2016

1

Working Towards a Viable Business ModelBusiness Model

Average Loan to Share Ratio 28%  (52% in 2008)

Investment Income Cushion Disappearing Investment Income Cushion Disappearing

Increased Costs

A i b hi Ageing membership

Model has to Change

Own Research

2

Working Towards a Viable Business ModelWorking Towards a Viable Business Model 

Irish Credit Union Model

What the Regulator Says

Large Credit Unions Canada 

Model

Suggested Future ModelModel

Viable BusinessMain Banks 

ModelStrategy 

ImplementationBusiness Model

Model Implementation

3

Main Banks Model

Divisions Overseas Corporate & Treasury Retail Retail

Retail Lending – Mortgages, Business Loans, Consumer Loansg g g , , Deposits Current Accounts Oth S i Other Services

Income  Funds (Lending/Deposits) Income 80% Funds (Lending/Deposits) Income 80% Non Funds Income  20% Push to Increase Non Funds Income

4

Main Banks Model – Cont’d Deposit Income – Gone

Non Funds Income Loan Application Fee Forex Forex Pensions Insurance Less Volatile Income

Lending Income D d t M i & Q t f L di Dependent on Margin & Quantum of Lending Charge More Interest – Not too  Price Sensitive Consumer Loans  ‐ Lions Share with CU’s Not Growing Fast Enough  New Lending grew by 17% last year

5

Main Banks Model – Cont’d Selling Model

M i H ddl Morning Huddles All staff focussed on selling Who are we Calling today What is our Target Online / 10 Minute Turnaround / Phone

C t t /ATM’ Current accounts/ATM’s ATM’s – Don’t Want them – Generating Cash Current accounts – Charge forg

Other Brand Loan to depositors ratio 109%;  loans to assets 65% Poor Customer service

6

Canadian Credit Union Model

Vancity Credit Union No 1 Vancity Credit Union No 1

Vancouver, $19.8 billion, 59 branches ($335k per Branch)

Retail & Business banking (Deposit taking & Lending)

Mortgage Lending

Other

Foreign Exchange / Life Insurance / Visa Credit Cards / Real Estate Developments / I t t Ad i S i/ Investment Advisory Services

Redefining Wealth & Building Healthy Communities

L Sh R i 97% Loan to Share Ratio 97%

Non Fund Income 20% 

7

Canadian Credit Union Model (Cont’d)( )

Vancity Credit Union No 1 Vancity Credit Union No 1

Loan Book Breakdown

R id ti l M t 65% Residential Mortgages  65%

Consumer Loans  5%

Commercial Mortgages / Loans 30% Commercial Mortgages / Loans  30%

KPI’s

New members New members

Return on Members Equity  6 – 10%

Member Well Being 50%

Value of Community Impact Loans  > 50%

Inclusive Workplace / Opportunity for Disabled 

8

Cambrian Credit Union - No 10

$3 Billion – 12 Branches ($258m per Branch)

Loan to Shares 90%

Non Funds Income 20%

Free Banking – Primary Banking Relationship

Personal Banking Current Account  ‐ Loans – Investing – Insurance – Credit Cards

Business Banking  Current Account  ‐ Loans – Investing – Insurance – Credit Cards

9

Current Irish Credit Union Model

Positives  Extensive Branch Network Top Ten Brand – Huge Trust  Li Sh f C L M k Lions Share of Consumer Loan Market High Reserves & Provisions  Excellent Customer Service Extensive branch network 

Challenges Challenges  Loan to Share Ratio Average 28% Non Funds Income Ratio < 1% Average Interest Rate too Low Viability Problem Bit like Post Office Network

10

Bit like Post Office Network

Regulator Commentsg

Significant challenges Significant challenges  Reducing loan Income  Ageing membership – revised business offering to attracting younger 

members through new channels g Investment Income falling   Increased Costs 

Four key areas to focus on:y Further restructure  Drive for younger active borrowers  Marked increase in core lending Business model development in a multi step, risk management way 

Acknowledging restructuring done ‐merger outcomes to date not realising full benefit ‐ limited benefits – cost effectiveness; service development; membership growth

Not just focussed on box ticking regulation; more about viability 

11

Suggested Irish Credit Union Modelgg

Core Lending > 50% Shares – No 1 Focus – all resources to this 

> €50m Assets and further Consolidation 

Provide New Products / Add on Services through Strategic AlliancesAlliances  Mortgages Insurance; Pensions Online Services

Increase Non Funds Income to 20%

Staff Focussed on Selling

Utilise the Branch Network 

12

Suggested Irish Credit Union Model (Cont’d)gg ( )

Technology On line Applications O Li T i On Line Transacting

No of Branches will have to Reduce

Reduce Dividends / Increase Interest rates where necessary

Charge for Services – Death / LPS Insurance / On Line

Give Back to Community in other Ways

Maintain Credit Union Ethos and TrustMaintain Credit Union Ethos and Trust 

Leadership

13

How to Achieve this

Individual Credit Unions

What are the Building Blocks required? g q

All about a Clear Strategy and it’s Implementation 

8 Key areas to look at – in particular: 8 Key areas to look at  in particular:

An Effective Board 

An Effective CEO An Effective CEO

Members and Loan Book Growth

14

Clear Strategy and it’s Implementationgy p

Time out Annually to review Strategy – Outside view

Loan Book growth is Key Focus

Clear actions and KPI’s

Make sure Realistic and Adequate Resources

Strategic Plan communicated to all Staff 

CEO’s Appraisal based on achievement of Strategic Plan 

Board Champions each Area

Monthly Board Focus 

15

Role/Attributes of the Board

Devise Strategy and Monitor it’s Implementation

Clear Reporting and Monitoringp g g

Move towards Strategy Focus / Delegate Operations to CEO

Required Skill Set, Age Mix , and Energy Required Skill Set, Age Mix , and Energy 

Membership of some Strategy Committees – Clear Briefs 

Larger Board Larger Board

Strong business like Charismatic Chair

ACTION R i B d d ti ACTION ‐ Review Board and agree actions 

16

CEO

Th K P i i M k i ll H The Key Position – Makes it all Happen Vision, Implementer, Leader, People person, Communicator, Multi‐disciplined  Have the Right Team in Place  Weekly Meetings – Focussed on KPI’s  Control of the dressing room  ACTION BOARD 

Have you confidence in the CEO implementing the CU’s Strategy Put plan in place – clear objectives  Mentor Mentor

ACTION CEO  Have you the right team and resources in place   

17

Loan Book & Income Growth All Bank Branch Staff focussed on Selling Daily Huddle – Daily Huddle 

Who will be call today Daily Targets

Keep Sales very simple – Sell 3 Products Every Person coming in Ask Any Interest? Every Person coming in – Ask .. Any Interest? 3 Minutes on Phone – Ringing 40 Customers a Day

Local Credit Union – Competitive rates / Give us a Shout Didn’t Know he Wanted a Loan  Like a Service Call Generating Own market by Making Phone Call

Training  All Staff Cluster training 10 Point Plan to Grow your Loan Book

Mortgages Business Lending – Keep Amounts small – More Riskyg p y All other Marketing Activity Car Loans 

Bread and Butter Stuff PCP taking Market Share

18

PCP taking Market Share Offer Product 

Strategy Implementation – Key Areasgy p y

1. Board & Governance

2 CEO & Team – Effective Team2. CEO & Team – Effective Team

3. Members & Loan Book Growth

4 Products & Services – Online New Products Non Funds Income4. Products & Services – Online, New Products, Non Funds Income

5. Infrastructure – Branches right Location, Don’t Over Invest

6 Regulation & Compliance – Outsource6. Regulation & Compliance – Outsource 

7. Mergers – Resources, Lessons 

8 Financial – Viability & Sustainability8. Financial  Viability & Sustainability

19

Conclusion

Research – looked at other models  ‐ lessons  Need for further change in the Irish CU model – strong signs of this beginning 

to happen  Put building blocks in place for succeeding Put building blocks in place for succeeding 

Clear Strategy Effective Board  Effective CEO 

Core Areas to focus on  Team structure & focus   Loan growth  Technology Non Funds Income Non Funds Income  Grow younger active member 

Reach out for help 

20

Keep Reviewing Strategy  and its implementation 

Thank You!Thank You! 

Colm O’Grady

Credit Union PartnerCredit Union Partner 

Phone:  090 6480600/087 8209158

Email:  cogrady@rbk.ie

21

22

Dealing with Mergersg g

Huge Energy & Cost & Resource & Focus Huge Energy  & Cost & Resource & Focus Not Delivering to Bottom Line Difficulties encountered include:

Small Credit Unions with Small Loan Book and a branch – Not Viable – Sustainable Staff hoping for Redundancy Ageing Common Bond Poor Lending – No Provision Upside Poor Staff/Manager – Unable to implement Change Branch Building MV O/Stated

Branch needs to Close / Reduce Opening Hours / Relocate Office Core Business Issues Neglected Need to Increase IA Need to Increase IA Overworked CEO Team  Dis‐function between Executive and Board/Committees 

23