Get Ready: Loans to Outpace Savings
A stealthily strengthening economy means credit unions soon should see their loans growing faster than their shares for the first time in several years, according to CUNA's economic staff.
"Since 2001, savings growth has topped that of loan growth, but we are now on the cusp of that switching over," said CUNA Economist Bill Hampel. "This comes from the strengthening of the economy."
NAFCU Economist Tun Wai agreed. "The economy is growing like gangbusters," he said. "What it comes down to is how confident members of credit unions feel in terms of putting money elsewhere. When people see corporate earnings are going up and returns on other investments are growing, then normally credit unions see an outflow of funds."
Wai is predicting a "pretty good Christmas season" which will also have an effect, boosting loan growth as holiday shoppers reach for their credit cards.
"We're expecting loan growth to come in at about 7% for the year, with savings growing by about 9%, but in 2004, we expect to see that flip," he said.
Technically, savings are still growing faster than loans, noted Hampel, if the focus is put on short-term numbers. He noted that during October loan growth was quite strong at .8%, but savings growth topped that at .9%. But that only tells one small part of the story.
For one thing, October ended on a Friday, and having that additional payday in the month tends to bolster share accounts. "If you take out that Friday effect, loan growth is actually stronger than savings growth," Hampel said. "More telling is the way the numbers are moving for the 12 months ending in October. Loan growth is up 9% for the year ending in October and savings growth is up 10.6% for that same period. The difference is, that nine has been moving up, while that 10 has been moving down."
He noted the third quarter of 2003 showed the "strongest growth in loans for any third quarter in the last nine years" coupled with the "weakest savings growth in five years for a third quarter."
Savings growth will really slow down when the Fed Funds rate finally inches up over the yields being offered on some credit union share accounts. "There's a temporary factor that will probably last through the middle of next year, and that is that the Fed Funds rate is very low, and that puts a boost in savings at credit unions," he advised. "Once the money market mutual yields rise, credit unions likely will see some money flow out of their shares."
Mortgage refinancings, which have driven loan volume, are losing steam, agreed Hampel, but he believes "consumer loan growth will rise."
Monthly growth numbers indicate a stable loan-to-savings ratio of 70.5% CUNA reported. Home equity loans were up 2.3%, adjustable-rate mortgages were up 1.3% and fixed-rate mortgages and new auto loan grew .7%. Used auto loans rose .6% and unsecured personal loans grew .3% with credit cards and other mortgage loans down by .5% and .3% respectively.