The latest Credit Union Trends Report from CUNA Mutual Group paints a bleak picture of what the industry can expect in the months ahead as the fallout from the coronavirus crisis worsens.
Along with 870,000 job losses in March, which brought the unemployment rate to 4.4%, the new report – which was issued this week but examines data for March – found a variety of important metrics fell that month as the outbreak became more widespread in the United States and state governments began implementing stay-at-home orders. For instance, personal income declined 2%, consumer prices decreased 0.4%, new home sales dropped 15% and auto sales plummeted 40%, according to the May report, which examines March data.
CUNA Mutual predicted the economy to contract at a 35% annualized pace this quarter with unemployment surging past 20%. The federal funds interest rate should remain at 0.1% until unemployment drops to roughly 5%, likely in 2023, CUNA Mutual said.
“The COVID-19 pandemic is expected to keep interest rates at the lowest level in history and the unemployment rate at the highest in modern history for the next two years,” the report said.
Credit unions should expect earnings to take a hit for the next two years, according to the report. The industry’s return on assets will probably decline to 0.2% this year before falling to -0.35% in 2021.
An uptick in provisions for loan losses is one reason for this. That metric is expected to rise from the 0.43% recorded in 2019 to 0.9% this year and then increase further to 1.2% in 2021.
Credit union loan portfolios increased by 0.3% in March, better than the 0.2% increase posted for the same period a year earlier, according to CUNA Mutual. Balances also ticked up almost 7% over the last 12 months.
