'Abysmal' Savings Combine With Strong Lending In July

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Very strong lending volumes in July coupled with what one analyst called "abysmal" savings by CU members have combined to boost the average loan-to-share ratio higher.

CUNA's Chief Economist, Bill Hampel, said another striking development during July was that savings growth at credit unions lagged that of banking and savings institutions.

Member savings at credit unions were up just 2.1% during the first six months of the year, and CUNA noted nearly all of that growth took place in January and February.

"It's typical for savings growth to be weak as the economy improves and moves toward full employment, as is now the case," Hampel said, "but this time credit unions are trailing other financial institutions in savings, likely because credit unions are not raising the rates they pay on shares and deposits as much as banks have done."

CUNA's analysis shows that credit union share of houshold savings declined to 9.7% in July, down from 9.9%, while banks' share increased to 61.8% from 61.4%.

The news was good on the lending side, however, with loans up 1.4% in July, a figure that would represent 6% annual growth if it holds up for 2005. New auto loans rose most sharply at 3%, as manufacturers dangle "employee pricing," followed by a 2.7% increase in second mortgage loans, a 1.6% rise in home equity loans as well as in unsecured personal loans, and a 1.2% increase in the category labeled "other" loans, according to CUNA.

"For years credit unions have faced stiff competition from captive finance companies with low-rate financing for auto loans. The recent shift toward employee discount programs has accounted for much of the auto loan growth at credit unions-3% in July, which is a humongous one-month increase," Hampel said.

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