By Frank J. Diekmann
If you’ve been in credit unions long enough to remember when you wanted to get home from work in time to catch the latest episode of Frasier or Third Rock from the Sun, since at the time “on-demand” meant whatever DVD you might have handy, then you remember Ralph Swoboda’s time at CUNA.
Swoboda was the last in the line of CUNA presidents who served in a job filled by people who onlycame from within the credit union community, and that was that. Swoboda left the job in 1995 to eventually be succeeded by Dan Mica—a former congressman—then Bill Cheney (back to credit unions) and now Jim Nussle (a congressman again).
But Swoboda never left credit unions (as CUNA’s GAC of Reincarnation proves every year, few people ever do).
The last time I had spoken with Ralph Swoboda he was doing work for CUNA Mutual in China when he was heading up the company’s international operations. But during a recent call from Ireland, where he is working now, he explained he has also done work with credit unions in Australia and the United Kingdom, as well as his new home, where he spends about 80% of his time. He has essentially become something of an individual World Council.
An attorney who was once CUNA’s general counsel, today Swoboda is managing director of CUFA, Ltd. in Dublin. Having spent more than 40 years in credit unions, he has also been chairman of the Management Committee of the Association of British Credit Unions, Ltd. (ABCUL).
In 2013, he bought out the owner of CUFA, Ltd., a company doing work in the U.K. on risk and analytics, with the partner taking the company’s banking clients and Swoboda retaining the credit union clients.
He started with seven credit unions onboard; today the company has about 50, representing approximately half the Irish market by assets. In January of this year, CUFA licensed its software for distribution in the U.S. by MeridianLink and has already seen several sales, he said.
Changing Accounting Standards
Much of the company’s work has been driven by the changing accounting standards in Europe, which require more sophisticated risk analytics, especially around forecasting loan-loss provisions.
When it comes to accounting for loan provisions, Swoboda said Europe has been ahead of the United States, where the Current Expected Credit Loss (CECL) rules are not yet formally in place. Europe is adhering to the International Financial Reporting Standards (IFRS) and Swoboda joked that the European view is that CECL is IFRS for “dumb Americans.” (Who says there’s no humor in accounting? OK, most everyone.)
“Financial analysts are looking to get to the financial performance of a loan portfolio, and provisioning is just one part of that,” continued Swoboda. “You may not be able to predict one specific loan, but the key thing is you can identify prospective losses on a portfolio that are highly reliable. Once you have a good handle on the prospective losses, you can do risk-based lending, better track collections and do forecasting.”
As CUToday.infohas reported, credit unions in Ireland have been in anything but four-leaf clover over the past decades, hit hard not just by the financial crisis but by traditional operating limitations and government rules that have made growth and building capital extremely challenging.
‘Stuck in a Time Warp’
If you travel in Ireland through even the smallest of villages you will almost always see an office for a local credit union along the main street in something straight out of a Tourism and Visitors bureau postcard, squeezed between the butcher and the post office.
Swoboda noted credit unions on the Emerald Isle remain a “major part of the economy,” with many having been founded by the Catholic Church, and while half the country is on the membership rolls, he estimated that about one-quarter to one-third of people in Ireland are active members.
“But the country is also stuck in something of a time warp,” he said. “It’s similar to what I saw when I started in the 1970s in credit unions. There are no secured loans, such as auto loans They are all unsecured loans. There are no credit cards. Credit unions had their boom years, but they have been steadily declining for 20 years. But some of the larger ones are starting to wake up. They are great people.”
Still, the average Irish credit union has just a 27% loan-to-asset ratio and most are seeing just a .25% yield on investments.
In a country in which there were once more than 400 credit unions, there are now about 200, and during and after the financial crisis a decade ago it took some capital infusions to keep the doors unlocked at many.
For most of their existence Ireland’s credit unions were also “regulated” by what Swoboda described as a “wholly owned subsidiary of the league.” Today, given the problems credit unions have had, they are regulated by Ireland’s Central Bank.
There are also two competing “leagues” in Ireland, the result of a schism and other issues that are best left to another column, as you’re going to need to sit down and raise a pint or three to get the whole story. And depending on who you’re elbowing the bar with, your story may not be their story of the whole story.
The Centre for Community Finance Europe
As if running a company in a very competitive software space weren’t enough to fill Swoboda’s time, in 2017 he joined with two other people in the British credit union movement to create The Centre for Community Finance Europe (CCFE). Swoboda described the effort as an initiative that has “morphed into what is basically the Filene Research Center of Europe” (he was one of the co-founders of Filene back in the day).
Joining Swoboda in the Centre are Dr. Paul A. Jones, who is the director of research at the CCFE and also a Reader in the Social Economy at Liverpool’s John Moores University, where he heads up the Research Unit for Financial Inclusion and serves as a director at a credit union in Manchester–and the appropriately named Nick Money, who is Director of Development and alsoan independent management consultant to co-operative and not-for-profit enterprises. He is also an associate with the Research Unit for Financial Inclusion and a board member at The Co-operative Credit Union in Manchester.
The Centre said its research addresses strategic and tactical/operational issues of sustainability, such as corporate governance, business strategy, product/service development and risk management, and is for use by co-operatives and mutuals.
Getting Actionable
The Centre was launched in July of 2017 and now has as members approximately 20 CUs from Ireland and another 20 that are British. It just released its second paper.
The Filene Research Institute has evolved in the U.S. away from being a publisher of academic research that’s nice to read, but…, and now has pivoted toward more pragmatic, applicable stuff credit unions can work with. The Centre for Community Finance Europe has learned from Filene’s example.
“Academics not really the best source of stuff for credit unions to use, to be blunt. The whole idea is to be actionable,” explained Swoboda, who said he has met with Filene’s Mark Meyer numerous times and “pumped him for information.”
He said he returns to Madison, Wis., at least six times per year.
A ‘No-Brainer’
As an example of the kinds of practical changes credit unions in Ireland and the U.K. need to make, Swoboda noted that there are no revolving loans offered by CUs. Instead, the practice is to “top up” an existing loan, which requires the member to fill out another application.
“It’s such a no-brainer,” Swoboda said. “People here have said, ‘Why haven’t we done this years ago?’”
But be careful before you pull a hamstring while waving a big American flag and shouting ‘We’re Number 1!’” Swoboda reminded that Europe has long been ahead of the U.S. (as has Australia) when it comes to technology such as mobile.
“I paid a parking ticket using my phone and bought a Coke with my phone 20 years ago here,” he said.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.infoor @FrankCUToday.