BIRMINGHAM, Ala. -
Former NCUA Chairman Dennis Dollar, currently a principle partner of Birmingham, Ala.-based credit union consultancy Dollar Associates, is forecasting that already tight credit union margins are going to be extremely tight in 2008. He said CUs will be looking for every opportunity to find ways to build income.
“I don’t know what the end-of-year ROA will be industry wide, but my guess is it will be closer to 70 basis points than 100 basis points,” he said. “This speaks to the fact the second half of 2007 previewed a very challenging 2008.
“That being said, capital is at an all-time high, and that’s what capital was built for–to help get through difficult periods,” Dollar continued. “Credit unions will have to manage the margin squeeze, but still will be able to invest responsibly in new products, new branches and new services. With solid capital in place, they don’t have to shut down these new things.”
Dollar foresees an increase in deposits in 2008. He said credit will be tighter, which will encourage people to save more. Under this scenario, Dollar said consumers might wait until 2009 to buy a new home or make improvements to an existing house. He further predicted there will be “some increase” in personal lending this year, such as consumer loans and used auto loans.
“Any time the economy is somewhat stagnant, there are increases in those areas. People who would have been buying a new car instead will buy a used car. They look to personal loans, rather than home equity loans, because home values are not going up as they have in recent years.”
The California CU League’s Terrin Mendivil agreed with Dollar on several points, including projecting a decline in auto loans. She said credit unions will see auto lending continue to be weak in 2008.
“With so many factors going on in the economy, auto sales will struggle, which affects credit unions because auto loans continue to be a substantial portion of their portfolio,” she said.
