Strategies For Managing in a Rising Rate Environment
Will Rising Rates Throw Your Credit Union Into the Red?
If your credit union is not using the right management tools, rising interest rates could lead to unprofitable operations.
Managers and boards are now facing the dilemma of rising rates
After a decade of low and stable rates, credit union boards and CEOs are now facing pressure from members to raise interest rates on deposits. Boards and managers need to prepare now for the impact rate increases will have on their cost of deposits, their earnings on loans, their interest margins, and their profitability. Wise management teams have already prepared and planned for rising rates by relying on integrated models to control interest rate risk. However, far too many will resort to subjective and, inevitability, disastrous methods to determine what their rates should be on deposits and loans.
Managers and boards need to avoid common mistakes
For the past 30 years or so, we at TCT Risk Solutions, LLC (TCT) have been studying the effects rising rates have on credit unions. Our findings point to some interesting conclusions:
TCT’s CostPro™ suite of management tools assures profitability
TCT has developed tools that help credit union boards and managers maximize their interest margins. These tools include:
○Deposit Pricing (including Dr. Thompson’s unique “Dividend Payout Ratio”)
○ Loan Pricing (Risk Based Loan Pricing)
○ Margin Management Tool (an interactive system for predicting interest rate margins and performing “what if” scenarios)
TCT’s Margin Management Tool (MMT) is particularly effective when integrated with TCT’s A/LM model. TCT’s A/LM process aids in determining the price elasticity of share classes.
Using the MMT, credit union managers are able to: