Congress Sees Long-Term Profitability Stagnant at CUs

WASHINGTON – Credit union profitability has remained almost flat since the height of the S&L crisis, 16 years ago, while the profitability for banks has surged since then, according to a new study conducted by the General Accountability Office, the think tank for Congress. Since 1990, the average return on assets (ROA) for credit unions has gone from around 0.80% and was 0.81% for 2006; while the average for banks, which were struggling with S&L-like loan problems, then had to boost capital for new industry-wide rules, went from a mere 0.25% to 1.27% last year, the GAO found. Release of the study comes a week after NCUA reported that the average ROA for credit unions plunged in the first quarter to a 20-year-low of just 0.73%. The study was conducted at the request of then-Rep. (now Sen.) Bernard Sanders, who made the request at the behest of NAFCU, which is seeking to fend off assertions by the banking lobby that the banks are suffering from the increased market share and the federal tax-exemption for credit unions. But to the contrary, the GAO study shows that the total profits for banks has increased an average of 8% a year since 1990, while credit union profits have increased an average of 3% annually. In addition, the GAO found that 2,356 closely held banks–roughly a third of the number of credit unions still in existence–now qualify for a credit union-like tax exemption as Subchapter S corporations. The study also found that credit unions, as well as banks, continue to increase their reliance on fee income as margins dwindle on loans and investments. Since 1990, credit unions have more than doubled the portion of net income they earn from non-interest, to 31% in 2006, from 15% in 1990; while banks have gone to 43%, from 32%.