Meeting the Challenge RBK's 5th Credit Union Seminar RBK s 5 ...
Meeting the Challenge RBK’ss 5 RBK 5th Credit Union Seminar Credit Union Seminar Thursday, 28th May 2015 Presenter: Colm O’Grady [email protected] Russell Brennan Keane, Dublin
INTRODUCTION
> Strategic Update > Reviewing your Business Model
CREDIT UNIONS HAVE BEEN MAKING HEADLINES
Irish Independent, 22/4/15
IIrish Independent, i hI d d t 18/12/14
Credit unions failing to address regulatory challenges Registrar says sector not doing enough to ensure viable future
Irish Times 4/3/2015
AND ..... •
–
•
According to Ed Farrell, the ILCU’s acting chief executive, its 400 members .... some €4 billion ready to lend........more than half subject to some form of lending restriction Given this situation, it seems implausible that the regulator would allow large-exposure mortgage lending by credit unions any time soon. And rightly so. Irish Times 11/2/2015 Credit unions are not complying with money laundering legislation introduced almost five years ago ago, according to a Central Bank report. report Irish times 22/5/2015
AND THE GOOD ..... •
Credit unions set to take on banks with launch of debit cards 18/2/2015 Irish Independent
•
'Super' credit unions set to emerge from new tie-ups 12/2/2015 Irish Independent
•
….credit unions have a fantastic opportunity to build their market share. The building societies have imploded and are gone. Banking is d i t d by dominated b two t players l who h together t th have h b t between 70 and 70pc d 80pc 80 market share. 12/2/15 Irish Independent
MERGER ACTIVITY > Per ReBo Communication > ReBo have assisted in 18 mergers with 43 credit unions > A further 120 credit unions at varying merger stages > Over 40% of the movement engaged
MERGER EXAMPLES Progressive Limerick CU’ CU’s
Member M b First
Merger examples
Dundrum
Castlebar Athenry
CENTRAL BANK > Significant number of papers/updates > Speeches S h / Comment C t > ‘seen in some smaller credit unions poor practices with regard to lending, risk management and operational controls, alongside concerns regarding future viability’ > ‘reluctance of some boards and management … to develop new sustainable business models to deal with the current challenges challenges’ > questions around the ’quality of strategic thinking and planning in many credit dit unions’ i ’
SECTORAL OVERVIEW > Average loan loan-to-asset to asset ratio has continued to decline - now at 30% > Over 200 credit unions are below this ratio > Total loan interest income has fallen by just under half in five years > September 2014 - nearly 10 per cent of credit unions had arrears exceeding 30% of their loan book > More than half of all credit unions are subject to lending restrictions. > Some optimism on the lending front and arrears are decreasing.
RBK OBSERVATIONS > Lack of a Marketing Resource > Organisation structures not supporting the business challenge – under resourced > Board fatigue g / lack of succession > New products introducing new complexities > Leadership > Lack of strategy clarity holding back progress & hiring > New skills required to pursue mergers
RBK OBSERVATIONS > Hard working grounded people > New Products and Services > Strategy being focussed on > Compliance & Governance a given > Mergers being pursued > Loan books growing – where being focussed on – significant upside potential > Business Model
REVIEWING YOUR BUSINESS MODEL
BUSINESS MODEL DEFINITION > The plan implemented by a company to generate revenue and make a profit from operations. www.investopedia.com
> The business model concentrates on value creation. It describes a company's company s or organisation organisation'ss core strategy to generate economic value, value normally in the form of revenue Financial Times ft.com/lexicon
CREDIT UNION BUSINESS MODEL > Strategic St t i Plan Pl > What should it look like: > Long term financially Viable > Relevant Members services offering > Regulatory compliant
> To do this, you need: > Strong energetic Board > Strong Management Team > May need a merger
REVIEWING YOUR BUSINESS MODEL > Important I t t to t review i your model d l and d decide d id on appropriate action > THE biggest decision currently facing all Boards is: > Have H we th the right i ht B Business i M Model d l iin place l tto iimplement l t our Strategic Objectives ? > What are the key actions to achieve the preferred future model? > Do we need to merge to achieve our Strategic objectives > What is the right merger strategy for our Credit Union
HOW DO YOU KNOW WHAT IS THE CORRECT DECISION FOR YOUR CREDIT UNION? > What is your vision? > Is your business viable and sustainable? > What is best for your Members? > How are you going to protect their long-term interests? > You urgently need to ….. decide on y your future business model > Complete an objective review
STEP 1 – JUDGEMENT TIME – RATE YOUR CURRENT MODEL > How would you rate your Credit Union under these key success factors? 1.
People
2. 3. 4 4. 5. 6. 7. 8.
Financial viability Board and Governance Members Marketing and Communications Risk and Compliance Infrastructure Products and Services
STEP 2 – BUSINESS MODEL OPTIONS – ACT IN THE INTEREST OF MEMBERS Options: 1. Remain independent 2. Become part of a Shared Services solution 3. Anchor a Merger with a smaller Credit Union 4. Merge with a larger Credit Union The Good news ….. there is an obvious option right g for your y Credit Union.
STEP 3 – DECIDE – USING OBJECTIVE VIABILITY MODEL > Objective, Objective subjective or emotive decision? > RBK Viability model > Scoring process which uses your knowledge of your current situation to determine the preferred Model option available to you > Reduces subjectivity > Supports pp communication > Underpins the management of change Clearly identifies choice of future business model
Rate Board Know
Step 3
Step 2
Step 1
WHAT IS THE RIGHT JOURNEY FOR YOUR CREDIT UNION? Long term viability is not just about restructuring Viability depends on you: > Achieving high scores under all key success factors > Assessing g yyour current business model > Deciding what is best for your Members > Moving M i fforward d
FAILURE TO DECIDE = FAILURE TO THINK STRATEGICALLY Possible Implications > Unable U bl tto supportt your community it > Stagnate > Reduced investment in new technologies > Loss of attractiveness for new Members > Inability to pay dividend > Difficulty recruiting the right team > Become non-viable > Wind up
IN CLOSING > Review the effectiveness of your business model and decide on action > Get an outside objective view on this > Keep the model simple
> High scoring in key success areas > Lending
> Decide D id on your merger strategy > Focus and implement your strategic direction > Only then enter into conversations on new products & services
Questions & Answers
Thank You
INTRODUCTION
> Strategic Update > Reviewing your Business Model
CREDIT UNIONS HAVE BEEN MAKING HEADLINES
Irish Independent, 22/4/15
IIrish Independent, i hI d d t 18/12/14
Credit unions failing to address regulatory challenges Registrar says sector not doing enough to ensure viable future
Irish Times 4/3/2015
AND ..... •
–
•
According to Ed Farrell, the ILCU’s acting chief executive, its 400 members .... some €4 billion ready to lend........more than half subject to some form of lending restriction Given this situation, it seems implausible that the regulator would allow large-exposure mortgage lending by credit unions any time soon. And rightly so. Irish Times 11/2/2015 Credit unions are not complying with money laundering legislation introduced almost five years ago ago, according to a Central Bank report. report Irish times 22/5/2015
AND THE GOOD ..... •
Credit unions set to take on banks with launch of debit cards 18/2/2015 Irish Independent
•
'Super' credit unions set to emerge from new tie-ups 12/2/2015 Irish Independent
•
….credit unions have a fantastic opportunity to build their market share. The building societies have imploded and are gone. Banking is d i t d by dominated b two t players l who h together t th have h b t between 70 and 70pc d 80pc 80 market share. 12/2/15 Irish Independent
MERGER ACTIVITY > Per ReBo Communication > ReBo have assisted in 18 mergers with 43 credit unions > A further 120 credit unions at varying merger stages > Over 40% of the movement engaged
MERGER EXAMPLES Progressive Limerick CU’ CU’s
Member M b First
Merger examples
Dundrum
Castlebar Athenry
CENTRAL BANK > Significant number of papers/updates > Speeches S h / Comment C t > ‘seen in some smaller credit unions poor practices with regard to lending, risk management and operational controls, alongside concerns regarding future viability’ > ‘reluctance of some boards and management … to develop new sustainable business models to deal with the current challenges challenges’ > questions around the ’quality of strategic thinking and planning in many credit dit unions’ i ’
SECTORAL OVERVIEW > Average loan loan-to-asset to asset ratio has continued to decline - now at 30% > Over 200 credit unions are below this ratio > Total loan interest income has fallen by just under half in five years > September 2014 - nearly 10 per cent of credit unions had arrears exceeding 30% of their loan book > More than half of all credit unions are subject to lending restrictions. > Some optimism on the lending front and arrears are decreasing.
RBK OBSERVATIONS > Lack of a Marketing Resource > Organisation structures not supporting the business challenge – under resourced > Board fatigue g / lack of succession > New products introducing new complexities > Leadership > Lack of strategy clarity holding back progress & hiring > New skills required to pursue mergers
RBK OBSERVATIONS > Hard working grounded people > New Products and Services > Strategy being focussed on > Compliance & Governance a given > Mergers being pursued > Loan books growing – where being focussed on – significant upside potential > Business Model
REVIEWING YOUR BUSINESS MODEL
BUSINESS MODEL DEFINITION > The plan implemented by a company to generate revenue and make a profit from operations. www.investopedia.com
> The business model concentrates on value creation. It describes a company's company s or organisation organisation'ss core strategy to generate economic value, value normally in the form of revenue Financial Times ft.com/lexicon
CREDIT UNION BUSINESS MODEL > Strategic St t i Plan Pl > What should it look like: > Long term financially Viable > Relevant Members services offering > Regulatory compliant
> To do this, you need: > Strong energetic Board > Strong Management Team > May need a merger
REVIEWING YOUR BUSINESS MODEL > Important I t t to t review i your model d l and d decide d id on appropriate action > THE biggest decision currently facing all Boards is: > Have H we th the right i ht B Business i M Model d l iin place l tto iimplement l t our Strategic Objectives ? > What are the key actions to achieve the preferred future model? > Do we need to merge to achieve our Strategic objectives > What is the right merger strategy for our Credit Union
HOW DO YOU KNOW WHAT IS THE CORRECT DECISION FOR YOUR CREDIT UNION? > What is your vision? > Is your business viable and sustainable? > What is best for your Members? > How are you going to protect their long-term interests? > You urgently need to ….. decide on y your future business model > Complete an objective review
STEP 1 – JUDGEMENT TIME – RATE YOUR CURRENT MODEL > How would you rate your Credit Union under these key success factors? 1.
People
2. 3. 4 4. 5. 6. 7. 8.
Financial viability Board and Governance Members Marketing and Communications Risk and Compliance Infrastructure Products and Services
STEP 2 – BUSINESS MODEL OPTIONS – ACT IN THE INTEREST OF MEMBERS Options: 1. Remain independent 2. Become part of a Shared Services solution 3. Anchor a Merger with a smaller Credit Union 4. Merge with a larger Credit Union The Good news ….. there is an obvious option right g for your y Credit Union.
STEP 3 – DECIDE – USING OBJECTIVE VIABILITY MODEL > Objective, Objective subjective or emotive decision? > RBK Viability model > Scoring process which uses your knowledge of your current situation to determine the preferred Model option available to you > Reduces subjectivity > Supports pp communication > Underpins the management of change Clearly identifies choice of future business model
Rate Board Know
Step 3
Step 2
Step 1
WHAT IS THE RIGHT JOURNEY FOR YOUR CREDIT UNION? Long term viability is not just about restructuring Viability depends on you: > Achieving high scores under all key success factors > Assessing g yyour current business model > Deciding what is best for your Members > Moving M i fforward d
FAILURE TO DECIDE = FAILURE TO THINK STRATEGICALLY Possible Implications > Unable U bl tto supportt your community it > Stagnate > Reduced investment in new technologies > Loss of attractiveness for new Members > Inability to pay dividend > Difficulty recruiting the right team > Become non-viable > Wind up
IN CLOSING > Review the effectiveness of your business model and decide on action > Get an outside objective view on this > Keep the model simple
> High scoring in key success areas > Lending
> Decide D id on your merger strategy > Focus and implement your strategic direction > Only then enter into conversations on new products & services
Questions & Answers
Thank You
