Rating agency warns about Credit Union North
Credit Union North has been placed on a negative outlook by Standard and Poors' due to "heightened business profile concerns".
Wednesday, September 19th 2012, 6:52AM
The ratings agency has placed Credit Union North's ‘BB’ long-term issuer credit rating on CreditWatch with negative implications.
“The CreditWatch placement on CUN’s ‘BB’ rating reflects heightened concern around the stability and future direction of the credit union’s business position,” S&P credit analyst Andrew Mayes says.
“Specifically, CUN’s lending volumes--most notably its personal lending--continue to contract, and we believe the credit union is not well-placed to quickly resurrect a positive growth scenario, owing to its relatively weaker operating efficiency; this has, in part, contributed to the credit union’s higher reliance on fee income compared to its peers, thus limiting its ability to better-compete. Progression of business initiatives has also being slowed by board and management changes over the past year. ”
In Standard & Poor’s opinion, CUN’s lending base remains under pressure amid broader operating environment challenges and a diluted member proposition. "Although we note the decline in aggregate lending volumes has slowed in fiscal 2012, with the credit union experiencing a further increase in mortgage lending to record levels, its higher-returning personal lending portfolio--considered by the credit union as integral to its relevance with its member base--continues to contract at an unhealthy pace (down a further 22% in 2012, from 34% in 2011)."
"We also believe CUN’s still-high operating cost structure--at around 90% as measured by non-interest expense to operating revenues-- limits the credit union’s ability to implement pricing strategies that could support new personal lending volumes, without placing renewed pressure on its underlying earnings. Having recently returned to profit on the back of lower write-offs and a reduction in new provisioning, we believe CUN’s earnings experience will remain modest and volatile while it operates under its current cost structure.
A CreditWatch negative listing by Standard & Poor’s implies a one-in-two likelihood that the rating may be lowered within the next three months. The CreditWatch is expected to be resolved after further discussions with CUN’s current management around plans and strategies to strengthen its longer-term business prospects. The long-term issuer credit rating of ‘BB’ may be lowered by one notch or more if we believe the credit union will be unable to stabilise its business position and stem the decline in its business volumes.
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