ALEXANDRIA, Va. – NCUA reported yesterday that loan growth for the second quarter was less than 0.1% while shares continued to grow at a strong 1.5% rate, as consumers hoarded their savings amid the continuing economic downturn.
Through the first six months of the year credit union loans grew by less than 1% and shares by 8%, putting downward pressure on profitability.
That compares to mid-year loan growth of 3.1% last year; 2.4% in 2007; 4% in 2006 and 5% in 2005.
"The most important thing is the difference between loan and savings growth," said Mike Schenk, senior economist for CUNA. "This will be the biggest threat credit unions will have to deal with going forward." He explained that that credit unions will have to deploy the extra deposits at a time when the average yield on investments is minimal. "Excess share growth tends to put pressure on the bottom lines."
As a result, credit unions had $38 billion to invest in the first half of the year with no place to invest it. "More and more assets are going into investments, which are yielding almost zero," Schenk told The Credit Union Journal yesterday. In fact, the return on average assets for the first quarter was just 0.18%, low by historic standards, but far better than the negative 1.72% in the first quarter.
The mid-year data released by NCUA yesterday also showed that the loan delinquency ratio rose in the second quarter to 1.58%, from 1.44% at the end of the first quarter; and the charge-off ratio inched up to 1.15%, from 1.11%. CUNA’s Schenk said the fact both indicators increased only slightly during the second quarter is a sign the economic downturn is slowing.
There were other bad signs though. Credit card delinquencies rose to 4.5%, the highest in at least a decade; while real estate delinquencies also continued to rise to 0.21%, also a decade high.
The number of members filing for bankruptcy also surged, with the total more than doubling from the first quarter to 77, 649. The amount of loans subject to bankruptcy also doubled to $1.2 billion.
The average return-on-assets, or ROA, was a meager 0.28%, but is impossible to compare with past quarters because of the ongoing costs of the corporate credit union bailout, which some credit union recorded in their fourth or first quarters, then reversed out after NCUA shifted the cost of the bailout to the new Corporate CU Stabilization Fund. The reversal of the bailout charges for many credit unions contributed to a 5% increase in net worth for the second quarter.
