By Jeff Hamilton, CFA, Vice President of Member Credit
I had the pleasure speaking at the recent CUNA Finance Council Conference at Caesars Palace in Las Vegas, Nevada. My 
session, on Monday, May 23, focused on loan participations as a winning strategy for credit unions.
Loan participations are like the Swiss Army knife of financial tools because they are beneficial in so many ways for both sellers and buyers.
The benefits for sellers include managing liquidity, concentration and interest rate risk, while boosting profitability and building capital at the same time. Loan participations also facilitate credit union growth by enabling sellers to lend beyond their typical balance sheet capacity. Sales replenish liquidity and preserve line of credit borrowing capacity.
On the flip side, the benefits of buying loan participations are virtually a mirror image of the same benefits realized by sellers. They offer attractive yields compared to other alternatives for credit unions with excess liquidity. By purchasing loan participations, credit unions can achieve higher income, boost profitability and build capital. Financial officers use loan participations as a strategic balance sheet management tool to diversify income streams, partner with other credit unions to capitalize on lending expertise for different loan types and grow through participating in lending opportunities beyond their typical balance sheet capacity.
Finding loan participation success is a balancing act. On one hand, the need to sell loan participations comes from strong loan demand, and while credit unions want to provide attractive loan rates to members, they also need to originate at levels to be able to sell “profitably” in the market. On the other hand, in a rising rate environment, buyers may wait for better levels to buy and forgo current offers for perceived "better" levels that are uncertain. Success requires striking the right balance between loan pricing vs. market rates, and borrower demand vs. buyer demand.
Catalyst Corporate can assist credit unions in managing this balancing act, providing a winning strategy for buyers and sellers and managing excess liquidity through its automated loan participation exchange platform. The Loan Participation Exchange, or LPX, is designed to efficiently bring together credit unions wanting to sell loan pools with a nationwide audience of credit union buyers.
The user-friendly platform provides a simple and intuitive experience built around transparency. It also offers credit unions reporting and remittance functions, along with the ability to:
- Sign up for automated text and email notifications of new loan pool availability
- Access term sheets with an extensive array of loan stratifications
- View all due diligence information online within the platform
Built on Catalyst Corporate’s years of experience serving the loan participation market, the LPX platform is an industry-developed solution just for credit unions. That means all funds stay within the industry, too – another key aspect of the program.
More than 200 credit unions have bought and sold loan participations since the program’s inception, creating an extensive network to help credit unions effectively reallocate excess liquidity over the long term.
To find out more about the Loan Participation Exchange platform and how it can assist with your credit union’s excess liquidity, contact us today.