Capital A Growing Concern At Successful CUs

Credit Union Journal Daily Briefing  |  Friday, March 19, 2010
 
RALEIGH, N.C. – Success may be too much for some large credit unions, who are looking at drawing in the reins a bit because of the negative affects it is having on their regulatory capital.

“It’s not an earnings problem, it’s a growth problem,” said Jim Blaine, president of State Employees’ CU, which grew 11% in 2008 and another 18% last year to almost $20 billion in assets. But the new assets diluted the credit union giant’s capital level to just above the 7% level, when regulators start to look closely at a credit union’s health.

Pentagon FCU’s Frank Pollack, who has managed an 8% growth in assets to $14 billion last year, said he plans to slow down growth this year to preserve a higher capital ratio.  The net worth, or capital ratio for the nation’s third-largest credit union dipped below 9% the last two years, to 8.7%, strong but still a threat to dilution by fast growth. “I’m not looking to grow so much this year,” Pollack told Credit Union Journal.

As illustrated by these two credit union giants, rapid growth has a negative impact on the capital by diluting the ratio. Perversely, negative growth, or a reduction in size, has the opposite effect, actually building the net worth ratio.

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