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Budgeting Tips For 2013

August 30, 2012
As the 2013 budgeting season gets into full swing, things have not changed much for most credit unions.  The industry is still facing the challenges of weak loan demand, robust deposit growth and declining asset yields.  Here are a few things to keep in mind as you put together your budget:
  • Make it as realistic as possible.  Unrealistic budgets result in poor decisions and unhappy surprises later in the year
  • Look at recent trends in loan and deposit growth.  If your budgeted loan and deposit growth are very different from trend, you should be able to point to concrete reasons why the trends will change
  • Incorporate balance runoff.  If your budget model doesn’t calculate runoff, try to build in reasonable assumptions to capture how fast portfolio yields will change (most are declining)
  • Don’t stop with 2013.  Carry major trends forward to get a 3-5 year view.  This shows the impact of those trends continuing, which may not have much effect over just one year
  • Do “what-ifs” that focus on assumptions you’re not sure about and have the highest impact such as loan and deposit growth and provision for loan loss.  This is especially important if net worth is an issue.  If the results are unsatisfactory, identify and model solutions so you will know what triggers to pull if things don’t go as planned
  • Consider doing “what-ifs” showing different rate environments. Think about how loan and deposit growth might change if the rate environment changes
  • Evaluate the budget in terms of asset liability management by modeling the resulting interest rate risk if the budget comes true

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