'Disturbing Trend' In Lending Due To Recession, CUNA Mutual Reports
MADISON, Wis.-A "disturbing trend" in CU lending is just one fallout from the recession and slow recovery, according to a new report.
"Consumers are working off debt rather than satisfying pent-up demand with new borrowing," noted CUNA Mutual in its November Credit Union Trends Report. "The Fed's prescription for recovery is historically low interest rates for an extended period of time. This is great if you are a qualified borrower or have successfully refinanced, but savers, non-qualified borrowers and CUs with excess funds to invest, are struggling to remain positive in this environment."
The disturbing trend, according to CUNA Mutual, is that total annual loan growth has been negative each month since February of 2010. At $482-million total loans are down 0.9% YTD and 1.3% in the past year. Many credit unions have responded by taking action on the other side of the balance sheet, but the CUNA Mutual report adds, "Limiting growth is a short-term solution, but without growth, naturally rising expenses, increased regulatory burdens and new limits on non-spread revenue will consume any bottom-line positives." It added, "While the probability of a double-dip recession has edged down, no environmental lift is forecast for the next 12 to 18 months."
The CUTR said the "only near-term growth bright spots are used vehicles, credit cards and fee income from originating and sell 1st mortgage transactions. The closest thing to a positive for new vehicles will be a slowdown in the rate of portfolio decline."
Other findings in the report:
• The net loss of 29 CUs in September brought the YTD decline to 177. Over the past year, we have lost 238 institutions and the market count now stands 7,654 CUs. But the report adds, "Consolidation rates remain well below our forecast and historical averages."
• Credit unions are using deposit pricing as a tool to manage their capital ratios. Deposit yields continue to fall and thus deposits are up just 5.6% over the past year. Total assets of almost $929 billion reflect 4.0% annual growth.
• Credit unions are ready, willing, and able to originate member fixed-rate 1st mortgages, but they can not safely fund historically low yielding fixed-rate assets with short-term deposits. The 3.1% growth in 1st mortgages reflects a combination of fixed and variable-rate loans. Credit unions continue to tell us any growth in fixed-rate 1st's reflects either inventory for sale or cherry picked loans (short duration-low loan-to-value holdings).
• While home equity loans are up 1.5% over the past year, when combined with 2nd mortgages, this portfolio segment is down 5.0%, in large part due to refinances.
"Given our outlook for continued low interest rates, it is highly unlikely CUs will grow RE loans by changing retention strategies," the study states. "Creative financing and extensive member data mining provide the best opportunity to grow cherry picked loans. This appears to be the best option for CUs and their members."