How do you accomplish growth? Why do you want growth? What IS growth?
I think when we talk about growth, we are mostly talking about growing the balance sheet. We tend to think of growing asset size, but these assets will need to be funded with deposits and retained earnings, so really growth comes on both sides of the balance sheet. But why is growth a goal?
When an institution is larger, ideally it can offer more to its members. More capital allows for offering bigger loans and attracting larger relationships. Also, more earning assets should generate more income, which in turn, can be used to fund more member services.
Credit unions that remain small will only be able to serve a limited role in their members’ financial needs; whereas, growing CUs will more easily provide a wide variety of services and update services to meet changing demands and needs.
I’ve seen in my career how small institutions struggle to meet larger and larger loan requests, and lack money and resources to update technology. While some fear that growth will make them more corporate and less personal, too little growth can result in an existential threat. An institution that fails to grow fast enough will not be able to adequately serve members, and those members may no longer seek services from the CU.
Now, we have looked at what is growth and why it is beneficial, but how do you accomplish it? Like we said, growth in balance sheet requires both a growth in assets and a growth in liabilities. You need to identify both loan and investment opportunities to grow assets, while at the same time identifying deposit opportunities too.
Uneven growth will come at an expense. If you grow loans and not deposits, you will be faced with a potential liquidity problem or have to pay to borrow from other institutions. If you grow deposits and not loans, you will be left with too much cash that pays no interest, or invest in CDs or government securities with low yields.
Accomplishing loan growth also presents challenges. Too many consumer loans may have too low a yield. Business loans have higher yield but higher risk. Attracting new business loans takes time to develop relationships with the right people. Rapidly growing a business department by compromising credit standards will greatly increase the chance of losses.
There is, on the other hand, such a thing as too much growth or too fast of growth. As mentioned earlier, uneven growth is expensive and rapid loan growth poses credit issues. And then on the operational side, too many new services, locations and products coming online at the same time will have your own CU competing for resources. If your CU’s operations are disorganized, you will not be providing any real quality services to anyone. Here is where you risk taking on that cold corporate feel and will lack the ability to personally connect with members.
Growth is important and necessary too, to keep up with members’ needs. However, it needs to be managed smartly, which includes not growing too fast in any way that can invite issues. Finding the right balance comes from experience and good strategic planning.