Budgeting For Loan Growth
August 16, 2012
In this uncertain economy, many credit unions are seeing loan growth come in below budget. Others are experiencing loan growth that meets their budgets; however, they are still below budget on loan interest income. Why? Interest rates have fallen since their budgets were created and competition for loans has resulted in the credit union getting the loans at a lower rate than budgeted.
Example 1:
Can the credit union make up this revenue variance by making more loans? Maybe, but as the example below indicates, the credit union would need to grow loans 25% over the budgeted amount to breakeven on loan interest income. Many credit unions would feel this is not achievable in today’s environment.
Example 2:
If the credit union is not able to increase loan growth, then, all else equal, net income will fall short of budget. However, all else doesn’t have to stay equal. While cost of funds may be hitting a floor for some places, other credit unions still have room to move lower. And operating efficiencies are key for surviving today and being successful in the future. Remember, the point at which you address a problem is directly related to the number of viable options you have to solve it. If you are in this situation, begin laying out alternative plans now to help achieve your desired level of income.
