Decline In Delinquencies, Charge-Offs Should Fuel Growth In Industry ROAs

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LOMBARD, Ill. — A negative statistic will lead to more positive results for credit unions in 2011.

Bill Handel, VP of research and development for Raddon Financial Group, told Credit Union Journal that ROA should get a boost in 2011 from a drop in delinquencies and charge-offs. "I think we are beginning to see the end of the cycle of the large loan-loss provisions institutions have set aside in 2009 and 2010. If you can free up the provision expense, you will see some improvements in earnings over this past year. Of course you will still have the overhang from the corporate bailout..."

Projecting only modest economic growth (2% to 3% GDP), unemployment in the 9% range, and vehicle sales only gradually picking up, Handel sees the new year as not being much different than 2010. "Pretty consistent with what we are experiencing right now," he said.

That will lead to slow aggregate lending growth, surmised Handel, who said consumers will continue to deleverage, but for a slightly different reason this year. "A good portion of the loan volume reduction seen in 2009 and 2010 was forced on consumers through foreclosures, defaults, and reduction of credit lines. In many ways the consumer was not an active participant in the deleveraging. But in 2011 you will see them become more active in terms of continuing to try to reduce their debt load."

Since loan growth will continue to be difficult, the practice of credit unions ratcheting back deposits will continue. "Simply because they have no way to lay off those deposits in any effective manner," said Handel.

Despite a slow economy, Handel believes growth opportunities will be available to credit unions that take advantage of banks' poor consumer image, which won't go away in 2011. "There will also be the opportunity to grow through merger and acquisitions as there will continue to be failures and near failures," Handel said.

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