Signs Of Life In Lending
ATLANTA-There are signs of life in prime borrowers and that could bode well for lending growth improvement in 2012.
Myra Hart, SVP of analytical services for Equifax, offered that analysis during a recent Moody Analytics webinar on consumer credit. "There are some real signs that things are turning around. Since about February this year, 700-score consumers have been increasing their balances on discretionary loan products-bank card, retail card, auto loan, and consumer finance. It appears that prime consumer demand fore credit is expanding now and that is a good sign for next year."
But the demand is not spread equally across the U.S., said Hart. Equifax has seen more activity from prime borrowers-for bank card balances-in the upper East Coast, Texas, the Dakotas, Montana, Wyoming, and Utah. Prime borrowers appear to still be deleveraging in the sand states, New Mexico, and parts of the Midwest, she said.
Debate Over Effect of Rates
PLANO, Texas-Ongoing low rates are leading to speculation as to what the longer-term effects will be.
Catalyst Corporate noted that Dallas Fed President Richard Fisher and Economist Marci Rossell, who spoke at its Economic Forum, expressed worries that holding rates at such low levels for such a long period of time could eventually lead to higher inflation and even a spike in interest rates.
For credit unions with longer-term loans on their books, it's certainly an issue, Catalyst noted. The corporate said that's one reason its Strategic Solution's NEV (Net Economic Value) reporting tools are important, and why it offers help to credit unions to measure the impact of a sudden interest rate spike.
"We're certainly not predicting a rise anytime soon, but the opportunity for increases could exist under certain situations," said Mark DeBree, manager of the ALM Service at Catalyst Strategic Solutions.
DeBree noted that if a credit union's portfolio is stocked primarily with vehicle loans and other short-term investments, that portfolio will re-price adequately. However, for the more complex credit unions-laden with 15-and 30-year mortgages that are locked in during a period of rising interest rates-the opportunity exists for net margins to be further squeezed, DeBree said.
The Year of the Gray Swan
SAN ANSELMO, Calif.-The new year is being projected to be a "gray swan" year. Market Rates Insight said that is a year in which a risk is plausible, but the extent of the risk to institutions is unknown.
"Unlike a black swan, in which the risk is highly improbable and unknown, the banking gray swan is the financial faith of the European Union, which is made up of 17 member countries," Market Rates Insight said. "One possibility is that money supply in the EU will diminish, which could cause the LIBOR to go up. Higher LIBOR is very likely to impact the interest rates in the U.S. Another option is that LIBOR will decrease in order to increase money supply and stimulate lending, which is likely to put even greater pressure on net interest margins, causing deposit rates to go all the way to zero."
