Membership, loan growth to drop sharply by 2020: economic forecast

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Credit union growth rates could be cut nearly in half by the end of 2020 as the nation stares down the possibility of a slight recession within the next few years.

That’s according to CUNA Mutual Group Chief Economist Steve Rick, who offered an economic outlook during this year’s CUNA Mutual Online Discovery Conference.

As Credit Union Journal reported earlier this year, Rick has been sounding the alarm about the possibility of a recession for a while, but he was quick to note during the Online Discovery Conference that whatever happens will be “a mild, modest recession – not like the recession we had 10 years ago.”

While credit unions have seen double-digit loan growth for the last several years, Rick predicted that figure dropping to 9 percent for 2018, followed by 7 percent in 2019 and 5 percent in 2020. And loan growth is already slowing at the largest credit unions, he said, though CUs of $250 million or less are staying steady for now or even growing.

And since so much of membership growth is driven by loan growth, credit unions are likely to see stark drops in membership in the coming years as well. While annual membership growth has climbed steadily from 1.5 percent in 2011 to 4.4 percent in 2017, Rick predicted a stark drop to 3.5 percent growth for 2018, and further drops to 2.5 percent growth in both 2019 and 2020.

One element driving that decline in membership growth is a projected slowdown in indirect lending, which Rick said is driving a lot of the growth right now. As more and more indirect loans are paid off, he explained, a lot of credit unions will remove those inactive members from their rolls.

Sticking with auto lending, car sales have been above 16.5 million units for each of the last four years, thanks to pent up demand since “we didn’t buy a lot of cars in 2010, 2011 and 2012 after the Great Rcession,” said Rick. That number is expected to begin to drop – though still stay well above long-term trend levels – which will mean “credit unions will be fighting for a bigger piece of a smaller pie over the next few years.”

One other figure expected to continue to decline is the overall number of credit unions, which currently contracts by 200 or so each year. Rick predicted a shrinkage of about 230 credit unions for 2018, but the bigger headline is that the shrinkage trend should continue indefinitely.

“What’s fascinating is what I call the decay rate, the percentage decline,” he elaborated. “Looking back to 1980, we basically lose 3.5 percent of credit unions each year. That’s the decay rate of our industry…it’s remarkably stable.” He predicted industry shrinkage of about 200 or so credit unions for each of the next few years, but the percentage decline should stay the same. “You can predict how many credit unions we’ll have 10 years from now by shaving off 3.5 percent from the total number,” he said.

The credit unions that do continue to operate, however, are going to see increasing wage pressures, predicted Rick. With unemployment levels remaining low, CUs are going to be forced to pay more to retain their top talent in order to prevent them from taking jobs elsewhere, and that will have an impact on the bottom line.

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