Loan-To-Share Ratio Inches Closer To 80%

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The average loan-to-share ratio for credit unions inched closer to 80% during October as savings balances declined and members continued to borrow, according to analysis by CUNA.

CUNA's Economics and Statistics Department said that the industry's loan-to-share ratio hit 79.4% in October, up from 78.5% in September.

That ratio has not hit 80% since 2000, when the NCUA sent out letters to credit unions expressing its concerns over liquidity, noted Mike Schenk, vice president of economics and statistics for CUNA.

But Schenk said that three things have changed in the credit union environment since then:

1) NCUA and examiners are more open about the use of borrowings to fund operations and more receptive to alternative funding resources.

2) NCUA issued a letter on liquidity with broad guidelines as to what would cause concern, including a loan-to-asset ratio of 70% or more; liquid assets or cash in short-term investments of 15% of less; and borrowing and nonmembers shares of more than 5%.

In a statement from CUNA, Schenk said there are other changes in the credit union community in 2005 from 2000, including the fact that in 2000, more than half of credit unions had loan-to-savings ratios at 80% compared with the 25% of credit unions that have that ratio in 2005. "Even though the ratio is at the 80% level, these changes could be enough to ease concerns. According to the monthly credit union estimates from CUNA's Economics and Statistics Department, loans grew 0.6% to $471 million in October from $468.3 million in September," CUNA said.

CUNA's analysis shows year-to-date loan growth is 9.9% for the year. The $471 million in loans is 11.2% more than a year ago in October when it was $423.6 million.

Savings continued on the downward slide for the year-dropping 2.2% to $202.4 million from $206.9 million in September, CUNA said. Year-to-date savings have decreased 6.2%. Savings dropped 7.7%, compared with one year earlier.

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