Negative Growth Vexes CUs

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WASHINGTON – The dual trends of record-low savings rates and the de-leveraging of consumers has created a condition seldom, if ever, seen among credit unions – stagnation – that is, declines in both deposits and loans.

Credit union deposits shrunk by 0.5% in November as $4.7 billion left the credit union system, the third month in 2010 with negative share growth, according to CUNA’s monthly data. Savings are projected to rise just 4% for the year, the lowest since 2006.

Just as troubling, loans declined a second straight month, by 0.2% in November, meaning credit union loan portfolios have declined by 1.2% through the first 11 months. That’s after an anemic 1.6% in 2009.

Credit unions have seen days when savings growth is low but loan growth is usually strong; and other times when loan growth is slow, but savings typically grow during those periods. But rarely are loan growth and savings growth negative at the same time, according to CUNA’s Chief Economist Bill Hampel.

The November numbers mean that 2010 will be the first year since 1981 that credit unions have negative loan growth, said Hampel. That was when high interest rates combined with the Carter administration’s push to dampen consumer spending, which eviscerated credit union lending.

This year’s trend, both negative loan and savings growth, may be attributed to two factors, according to Hampel. The first is efforts by consumers to continue to pay down debt, the so-called de-leveraging of consumers, dampening loan demand. The second is the continuation of anemic rates on savings products. The average rate on regular accounts at credit unions was just 0.4% and a meager 0.6% on money market funds at the end of November, according to CUNA. These are about the lowest ever paid on savings.

As a result, it is a better deal to pay off debt than to add to savings, pointed out Hampel.

It remains to be seen what impacts the dual trends, if they continue, will have on the bottom lines of credit unions, both short-term and long-term. Hampel said he expects credit unions to report an average return-on-assets of as much as 60 basis points (0.60%) for 2009, a good performance, considering the more than 20 bps eliminated through NCUA assessments. He said a similar ROA could be possible in 2011.

 

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