Diversification, Pricing Policy and Credit Union Risk
Ian G. Sharpe
Using a sample of Australian credit unions, we examine the relationship between diversification, pricing policy, risk, and earnings. Credit unions with more concentrated revenues have higher earnings and volatility of asset returns. Those that use pricing policy to reduce dependence on interest on personal loans by increasing transaction fees have higher risk and smaller earnings while those with a higher proportion of revenues derived as commissions and off-balance sheet facility fees have higher risk. Credit unions deriving a higher proportion of revenue from interest on residential loans and a lower proportion from interest on personal loans have lower risk and return.
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