A new survey of credit union CEOs by Catalyst Corporate Credit Union reveals positive expectations for loan demand over the remainder of 2016.
In Catalyst Corporate's Second Quarter 2016 Credit Union CEO Confidence Survey, the "32.91" index figure for "Loan Demand at the Credit Union in 6 Months" increased by 4.34 percentage points over the previous quarter and ranked as the highest such assessment for loan demand in a decade. (In the second quarter of 2006, credit union CEOs set the same index at "33.99.")
"Lending typically picks up in the second quarter of the year, but lower consumer loan rates have certainly helped," said Steven Houle, vice president of Catalyst Strategic Solutions' Advisory Service in a statement. "Since the 'Brexit' vote on June 23, when British citizens voted to exit the European Union, interest rates have remained low. Thirty-year fixed mortgage rates, for example, have fallen close to 60 basis points since the start of the year and are currently below 3.5%."
Houle added that "current environment optimism" is also fueled by the fact that loan performance has been strong, with little change in credit unions' allowance for loan losses.
"It's still a little early to forecast loan growth projections for next year, but the interest rate environment will play a factor," he added. "Financial market volatility always seems to be lurking around the corner, threatening to send borrowers quickly to the sidelines."
For example, loan growth – particularly in auto lending – was strong during the second quarter at 1st Gateway Credit Union, a $128 million institution based in Camanche, Iowa. However, 1st Gateway CEO Pat Drennen said that growth is "leveling off" as competitors reduce their rates to try to capture these loans.
"While we're still seeing positive loan growth, we can't justify making loans at some of the low rates we're seeing from our competitors," Drennen said. "We're not willing to lock in a 1.5% loan and we have let some of those loans walk away. With a 100% loan-to-share ratio, strong income and strong total capital, we are using this opportunity to work toward increasing our net worth."
Taking the Long View Aside from loan demand, CEOs surveyed by Catalyst are feeling better about the state of the economy now than they are of its future strength. The overall "Confidence Index" increased by almost a whole point, from 30.41 to 31.34 quarter over quarter. That overall index has only reached that level in two other quarters since 2007.
But CEOs also indicated much stronger confidence in the "Present Situation Index" (up by 2.02 points) than the "Expectations Index" (up only 0.39 points).
Within the "Present Situation Index," CEO confidence increased by 2.8% when asked about their members' current financial condition, and increased by 1.27% when asked about their own credit union's current financial condition.
In contrast, a closer look at the "Expectations Index" revealed an increase of only 0.36% for members' financial condition in six months, while confidence actually decreased by 1.67% when asked about their own credit union's financial condition in six months.
In addition, CEOs are expecting a decline in share deposit growth for the remainder of the year -- that index dropped by 1.59 points from the prior quarter's survey.
Catalyst is a $2.8 billion institution based in Plano, Texas.
