MADISON, Wis. — Credit unions are making the right moves in a tough economy, but a "series of body blows" this year will make 2010 even more difficult, according to CUNA Mutual's top economist, Dave Colby.
Credit quality issues, assessments and declining net worth ratios will make it tougher to grow in the coming year, but grow the industry must to keep consumers from suffering additional setbacks. According to its most recent Trends Report, credit unions are vastly outperforming the market in credit growth as the industry saw a 2.5% bump in consumer credit in August while the rest of the market contracted by 5.1%. The numbers were even more dramatic in credit cards where the industry was down 8.2% but credit unions saw a 6.4% increase.
"CUs are doing the right thing, but none of them have changed any of their underwriting standards. They are growing and supplying credit to U.S. consumers where everyone else is backing off," said Colby.
But the increasing problems in the commercial real estate market and lingering broader economic issues could cause an even further tightening of credit, especially on small businesses, and that could be devastating to the nascent recovery. A re-freeze in the credit market could lead to further layoffs and business shutterings.
"Clearly we are not out of the woods yet," Colby said, giving 30-35% odds that the economy sees a double-dip recession. It wouldn't be a "deep dip," he explained, but fresh economic contraction would extend the duration of very weak growth.
Credit union capital levels remain fairly strong despite the terrible economic conditions with industry wide capital at 9.9%, just a little below the 10-year average of 11%. Asset growth is up 8.6% over the last year and 7.3% year to date, though loan growth slowed to 3.2%, the slowest expansion since 1993, as credit unions are selling off more than half of the mortgages they are originating. With some credit unions becoming so swamped with deposits they are cutting the size of their institution to boost net worth, Colby suggested CUs make the appropriate pricing adjustments on the deposit side.
While he is not a fan of buying marketshare, Colby does see opportunity to be more aggressive in lending without bringing on undue risk.
"Take the same environment that is paying nothing on CDs and find some loans to re-write," he said. "We do have to remember that there are still 131 million Americans that are still working and there are some tremendous deals out there."
In addition to lower prices on homes and automobiles working members can take advantage of, there are likely a number of retired or nearly retired members looking to get rid of the remaining debt they have, to do it faster and with a lower interest rate.
"Get the lending up without taking undue risk and that is going to add to those basis points that have been withdrawn by assessments," said Colby.
