Over half of credit union credit card portfolios shrank in 2001, brokers say

<p>WASHINGTON – Credit unions’ credit card portfolios increased overall by 1%, but 57% of them shrank and 33% shrank by more than 5%, according to an analysis of NCUA data conducted by AssetExchange, a leading broker of credit union credit card portfolios. Growth among the largest portfolios and the smallest counterbalanced the decreases in the mid-sized portfolios to allow the portfolios overall to grow at least a little, the firm reported. “If a credit union’s credit card portfolio is less than $1 million or more than $5 million it grew,” said Frank Selker, Co-Founder and President of AssetExchange. Credit card portfolios that are between $1-5 million were the ones most likely to shrink in 2001, a trend that “mirrored” broader card trends, the firm said. The firm also reported about 100 of the roughly 4,000 credit unions that have credit card portfolios sold them in 2001 and that the credit unions that experienced portfolio shrinkage also had the highest charge-off rates. AssetExchange did not claim to have definitive explanations for the trends but observed that the larger portfolios might have grown while others shrank in part because there are economies of scale in credit card management. The credit unions with the largest portfolios probably have the capital and expertise available to manage delinquencies and continue marketing efforts, suggested William (Willie) Koo, AssetExchange Founder and CEO. Selker also noted that the credit unions with the largest portfolios were based primarily in the military and public sectors, areas that might have been sheltered somewhat from the economic trends that caused card users to draw down their credit card balances. Steve Rick, Senior Economist with CUNA cited the strong market for refinanced mortgages as the most likely culprit in the card portfolio shrinkage. According to Callahan and Associates, 69% of the $46.6 billion in credit union originated mortgages in 2001 were for refinancing existing homes. “Credit union members might have been making prudent economic decisions to roll some of their credit card balances into home refinances where the interest can be taken off their taxes and where the rates are significantly lower,” Rick speculated. “That has probably been the driving engine behind portfolios shrinking.” Rick doubted the suggestion that bad management necessarily led to the shrinkage, noting that 2001, officially a “recession year” had to be seen as unique in that the economic downturn hurt consumer lending generally at credit unions. “New auto loans haven’t doing very well either,” he observed. Jeff Taylor, staff economist at NAFCU, concurred with Rick’s observations but observed as well that economies of scale favoring larger portfolios might have meant those credit unions had the staff and procedures in place to more effectively deal with economic downturn when it hit. “That may have been why the charge-off’s were lower,” Taylor estimated.</p>