Credit Union Journal Daily Briefing | Monday, April 16, 2012
WALL STREET – Fitch Ratings yesterday issued an unusual caution on congressional efforts aimed at lifting the cap on member business loans.
“Fitch Ratings believes credit unions could face significant challenges should they be allowed to make more small business loans,” the company said. “We believe few credit unions might successfully compete with those banks already heavily involved in the small business loan space. Limited experience could increase risk, and while increased business lending exposure might behoove credit unions in the long term, we believe it would ultimately have a measured impact on revenue.”
The unusual warning by Fitch, which rarely weighs in on legislative matters, comes as credit unions are increasing their decade-old efforts to raise the MBL cap from the current 12.25% of assets to 27.5%.
In its warning, Fitch disputes assertions by the credit union lobby that credit unions would fill a void by banks who are not lending to small businesses. “We believe that in the current environment credit-worthy businesses should experience little to no difficulty securing loans in the banking sector,” said Fitch.
“We feel it would be difficult for credit unions to build up viable business lending activities for several reasons,” said the Wall Street agency. “At the onset, addressing infrastructure and capability would be challenging. As part of business lending, a bank must have and relies upon adequately trained staff (which includes a business credit approval and monitoring infrastructure) and be able to provide competent business cash management services and other ancillary products. We believe smaller credit unions with limited resources might find it difficult to successfully compete in a larger business loan environment.”