MADISON, Wis.-The economic tea leaves do not show rapid growth nor booming loan demand in the second half of this year, meaning credit unions must look for alternative means to build their portfolios, according to one analyst.
Dave Colby, chief economist for CUNA Mutual Group, note that despite several positive economic indicators, the loans-to-assets ratio for CUs is at its lowest point in nearly two decades: 57%.
"The last time it was this low was July 1994," he said. "We are coming up on three years of 'recovery' from the official end of the recession, but most people don't think we are in recovery. It is tough to find a new loan, so credit unions have to really shake the bushes. They can start by looking at existing loans. Work with older members to refinance loans they have elsewhere. If people are paying on their loans, give them a cheaper loan with the credit union."
Membership numbers are up, but CUs need to take advantage of the opportunity generated by all these new faces, Colby continued. He said one goal should be to swap out 70% of new members' credit cards from banks to those issued by the credit union.
"Show people how much the credit union can save them on interest, in addition to the threatened $60 debit fee from Bank of America," he advised. "Keep piling on the benefits throughout the year, especially the lending benefits. Even a 2% auto loan is a great spread compared to a 10-year Treasury bill right now."
Colby said 2012 is a case of "so far so good" with Q1 producing better numbers than recent quarters. Based on figures and the comments he has heard from credit union leaders going into May, CU lending is stronger than Colby had expected, with first mortgage activity "through the roof" over a strong 2011.
Some 'Momentum'
"Assets, loans and capital are the best in three years, so we have some momentum," he said. "Going forward I see modest improvement in economic and employment growth. I see the economy chugging forward very modestly, with some concerns about Europe and China. The global economic condition and the interconnectivity of the international banking system and capital markets worries everybody-and if they are not they should be."
Colby said he remains concerned regarding the policy statements from the Federal Reserve, specifically the Fed's vow to hold interest rates down through 2014. In addition, Congress must once again vote on the debt ceiling, and there are several other factors he is watching carefully.
"The economy looks positive, but the risks remain very elevated," he stated. "Consumers are showing some replacement demand, particularly in motor vehicles, but I don't see a mass release of pent-up demand for products. Credit unions need to lend, lend, lend because they aren't earning anything on investments, which shows why they are holding on to mortgages on their books right now. Now is the time to refinance everything."
By the end of 2014 Colby predicted there will be a rapid flattening of the yield curve as short-tem rates rise faster than long-term rates, so he advised CUs to "make money now."
