Credit unions are looking to grow – but with this comes challenges of lending sufficient amounts of their assets, and finding key markets to diversify into.
The issue was considered by industry experts at the annual conference of the Association of British Credit Unions Limited (Abcul).
In 2015, members of FLA provided £110bn of new finance to UK businesses and households, £37bn of which helped consumers buy new and used cars. Motor finance is witnessing a significant trend towards secured lending, said Mr Dally.
One barrier remains the highly intermediated nature of the market, with subsidiaries of manufacturers, independent bank motor lending providers and dealers. Credit unions would have to have relationships with intermediaries, he said. Another potential challenge is that the long-term trend is moving from ownership to use.
Mr Dally said credit unions have the advantage of knowing their customers – who are also their members – leading to more straightforward and responsible lending.
Last year’s emissions scandal is also impacting on the motors market, with customers losing trust.
“Society’s expectations will be the key driver for what the government and the regulator do,” he added. “Society needs mobility in order to do well. It needs this sector.”
In Georgia, USA, competition is high, with 950 different lenders operating in the motor-lending market in a five-month period.
Greg Connor, executive vice president at Associated Credit Unions told the session how auto loans account for 63% of their loans.
The organisation has recently launched a mobile app for its credit unions that members can use to apply for loans.
To attract custom, credit unions use sponsorships, magazines, digital banner ads, membership drives, teller pads and branch posters, but the main channel that credit unions in Georgia use to promote themselves is radio.
The radio ads are not just promoting the credit unions, said Mr Connor. “We focus on education, so that they know what they can afford and what rate they deserve”.
He thinks credit unions in the USA must be part of the auto-lending market in order to grow. “It is viewed by credit unions as the safest and easiest to get into. The early successes can come from automobiles.”
The mortgage market is another area of potential expansion for credit unions. James Lauriello of Nationwide Building Society gave the session an overview of the sector. With £200bn in assets, Nationwide is now the second largest mortgage lender in the UK. Since the crisis the building society has increased its market share from 12.9% in 2011 to 13.4%.
Mr Lauriello said the UK government’s Help to Buy scheme has helped revitalise the market but it is still below pre-financial crisis levels.
The market is led by short-term mortgages, with people in the UK disliking being tied to a long-term fixed rate contract.
“There is room for rates to go even lower for mortgages,” he said.
Regulators have acted, introducing the mortgage market review and issuing new guidance for new borrowers, which slowed demand for the buy-to-let lending.
Home ownership rate is on a downward spiral in the UK, said Mr Lauriello, and the future trend is for more people to move into rental.
Another issue affecting the market is the shortage of affordable homes. Based on current projections, only in 2027 the supply will meet demand. The shortage is determined primarily by a lack of skills.
“It is not just about planning permission. There are not enough electricians, plumbers, brick builders,” he explained.
As a mutual Nationwide has a prudent approach to risk, argued Mr Lauriello. “We are committed to our mutual heritage and have no appetite to demutualise,” he added.