Ask an Exec – Volume 23

As part of our “Ask an Exec” initiative, each quarter BCEL members are asked to submit questions to our featured executives. Questions are compiled and highlighted on our website with corresponding responses.

For this edition, Thom Meyer, VP of Finance & Risk at Summerland Credit Union, and Justin LaJeunesse, VP of Finance & Centralized Services at Lake View Union, share their tips on inflation, rates, recessions, and how to become more knowledgeable about finance trends.

Questions:

1. With sticky inflation and financial conditions tightening it has become apparent that people are not willing to take on new debt at current interest rates. What is the expected impact on Credit Union profit margins, and do you see it impacting our labor force in the mid to long term?

2. What resources/media do you rely on to keep up with trends in both micro and macro finance? What is the best way for emerging leaders to become well versed in these topics?

3. What is the best way to prepare to succeed through a recession?

Thom Meyer, VP Finance & Risk, Summerland Credit Union

With sticky inflation and financial conditions tightening it has become apparent that people are not willing to take on new debt at current interest rates. What is the expected impact on Credit Union profit margins, and do you see it impacting our labor force in the mid to long term?

Profit margins will be a challenge to stay as we have been used to and may likely decline as the new loan activity (revenue) wanes at the increased cost to consumers, and on the member deposit book investments will be acquired or renewed higher (expense). Despite sticky inflation and presently higher interest rates, the correlated pair are not totally mutually exclusive. Some people may have little to no capacity to absorb both increased cost of living and cost of debt, but there is also a good number of people that have the means to use existing cash flows albeit in a changed payment priority to cover credit obligations or look for additional temporary credit access. There is a slower but continued opportunity and to be present for members, and for our balance sheet to take hold of mortgages at the same or better price than currently priced deposits.

Typically, during events like the present, we would start to see challenges in the labour market such as lower starting wages and little opportunity and rising unemployment one of the indicators defining a recession, but many wages have increased and reports of labour shortages are still in the news. Mid-term though, wages seem to be plateauing and the job vacancy rate may be declining which could impact the labour force negatively as it may take longer to find a job. In the long term, as present monetary policy is attempting to work hard to deliver price stability, our economy  and labour force will be positioned for expansion.

What resources/media do you rely on to keep up with trends in both micro and macro finance? What is the best way for emerging leaders to become well versed in these topics?

My typical lens starts with industry economic reporting and analysis such as the variety of Central1 Economic Reports and Canadian bank reports, and provincial government or Bank of Canada research material such as the Monetary Policy Report, Business Outlook Survey, Consumer Expectations Survey, and Financial System Review to name a few. A personal selection of Finance News RSS Feeds can help keep oneself apprised of near real-time headlines. Credit reporting and credit rating agencies also play an important role to help us keep up with developments and trends for our asset portfolios.

 

Start with what’s close to home and expand your newsfeed horizon to related news and the macro landscape; and, be sure to keep your eyes open to fast moving finance opportunities to stay ahead. With so much information available to us, it important to gather information on trends from within your footprint to relevant. Often, C1 Treasury resources provides the most practical links between operations and strategic outlook\forecasting.

 
What is the best way to prepare to succeed through a recession?
 
Prepare for a recession by confirming your present liquidity, earnings and capital stance and outlook, your resources and capacity.  Look inwards first, take inventory. From that inventory of business-lines, define the core that you need to protect and identify what could be divested from to focus on sustaining the core. At the same time, identify what opportunities you might be able to take advantage of in a stale economy. For example, with a strong capital and liquidity position, there may be an opportunity to prepare to bolster or grow a business a business-line that has a track record of pulling out ahead post-recession.  If your outlook is weaker or just stable enough, you may want to take an opportunity to hold back on front end growth, but solidify ore refresh your operating infrastructure from people and governance to process and technology to pull through recession and be prepared to reap from economic recovery.

Justin LaJeunesse, VP Finance & Centralized Services, Lake View Credit Union

With sticky inflation and financial conditions tightening it has become apparent that people are not willing to take on new debt at current interest rates. What is the expected impact on Credit Union profit margins, and do you see it impacting our labor force in the mid to long term?

Inflation and the heightened interest rate environment certainly have had an impact on all Canadians, whether you are an individual or business. Credit unions aren’t exempt from these variables and in many ways find themselves reacting to the increased costs and pressures that many Canadians are also navigating. The fact is, Credit Unions rely on interest income to cover their many of their operational costs. CU members rely on interest from their deposits held at their local credit unions. So, CUs are in put in a position where they can’t necessarily generate interest income due to the high-rate environment and members not really looking to borrow, yet they have to increase their interest expense to ensure members remain satisfied and don’t go down the street to a competitor with better rate. Because of this, profit margins are tightening and at risk of shrinking so many CUs are having to find other ways to generate interest income outside of the “traditional” way of relying on lending interest income.

As for the impacting on our labour force, of course. Inflation is designed to help bring supply and demand back in order. So as inflation pressure continue to rise, demand begins to lessen and therefore supply needs to halt. Depending on what industry you are looking at, this adjustment will impact them in many different ways. A great example of this is what we are seeing across BC and the lumber mill closures. It is not unheard of to see mills slow down or halt production for a given period of time, but with inflation impacting both side of the supply and demand curves, these unfortunate closures events are taking place.

What resources/media do you rely on to keep up with trends in both micro and macro finance? What is the best way for emerging leaders to become well versed in these topics?

Thankfully, the BC CU system has resources at Central 1 that provide frequent updates related to market and economic trends. This would be the first place I would recommend emerging leaders to go. The second place I would go is to your senior leadership and ask what resources they have leveraged throughout their careers. You would be surprised the little tips and tricks they have up their sleeves and connections they can call on. And finally, a good Google search should help you find all the information you need to stay current on what market and other financial experts are seeing and expecting in finance.

 
What is the best way to prepare to succeed through a recession?
 
I believe that communication is key. Not just with the finance teams, but with the whole organization as this will help shed light on member trends and conversations staff are having with them. Another really important piece is to work with your Asset & Liability Management (ALM) teams or partners to run stress tests and ad hoc scenarios to help spot indicators of a recession. Finally, make sure you have implemented strong reporting to your senior executive teams and board of directors so they can focus on developing strategic plans to mitigate any risks that inevitably come with a recession.

On behalf of BCEL, thank you Thom & Justin for supporting emerging leaders on their quests for knowledge and development!