Published in: CUNA Finance Council

Credit unions across the country are now focusing on 2020 planning. This includes identifying likely challenges, defining strategic direction, and forecasting the balance sheet and financial performance through the budgeting process. One of the top questions we field this time of year, whether lighthearted or not, is what rates are going to do over the next 12 months. Will the Fed cut rates, and if so, how many times and when? Will the 10-year Treasury yield face continued downward pressure stimulating a late 2012, early 2013 wave of refinance activity? We may not be able to predict the future, but we do have a few tips on how to keep speculation from dominating your strategic conversations and how to budget more effectively.

While no strategic plan is bulletproof, the planning and budgeting process should incorporate the key tenets of ongoing successful balance sheet management – namely funds management and capital planning. By prioritizing both components within the planning and budgeting framework, credit unions should find that preparing for the upcoming year and determining the most appropriate strategic course of action should be no more challenging than the daily balance sheet management process.

Before You Budget: Establish Your Risk Appetite and Strategic Goals

Policies are the starting point for any strategic conversation, detailing the general goals of the credit union and the risk parameters to operate within to get there. If your credit union’s risk policies are well structured, comprehensive, and include statements defining the general strategic goals and risk appetite of the Board, then this step is likely already complete. However, if you can’t easily identify goals and risk preferences, pump the breaks on detailed planning and have this conversation first.

Defining what success looks like – growth, member value, financial performance, etc. – is a critical aspect of the planning process. Once goals are established, risk expectations and parameters must be clearly and succinctly outlined. Having reasonable expectations of risk exposure given your cooperative’s goals is like filling your gas tank with the appropriate fuel for your engine. Without the right level of risk allocation, performance will suffer. Financial performance is the life blood of any credit union, allowing it to better serve its members, employees, and community in the most impactful ways.

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