Industry Appears Healthy Despite Premium Increase
Though the $164 million insurance premium imposed on the nation's 13,000 credit unions was an expensive surprise, there appears to be little cause for alarm about the industry's health.
Substantial evidence suggests that credit unions will avoid the spiral of failures, heavy insurance-fund losses, and escalating premiums that have beset thrifts and banks.
The board of the National Credit Union Administration last Friday approved the $164 million special insurance charge. It was the first premium imposed since the National Credit Union Insurance Fund was recapitalized in 1985.
Unusual Payout Level
The fund earmarked an unusually high $160 million payout to credit union depositors in fiscal year 1991, due largely to faltering institutions in New England. The fiscal year closed June 30.
But viewed next to commercial banks, credit unions are in good shape. Banks now pay premiums of 23 cents per $100 of deposits to the Federal Deposit Insurance Corp.; by contrast, the new credit union insurance premium is 8.3 cents per $100. Moreover, the latter is being billed by the NCUA as a one-time event.
Another reason for credit union optimism is that the $2.4 billion insurance fund is on the mend. Payouts to depositors will fall to an estimated $125 million in fiscal 1992, according to William Hampel, chief economist for the Credit Union National Association, the industry's chief trade association.
Credit union officials, however, are not happy. They said that the new levy essentially doubles their regulatory fees. Indeed, credit unions already paid an implicit 8.3-cent-per-$100 of deposits because of a requirement that they lend 1% of deposits interest-free to the insurance fund.
They are less able, however, to answer bankers' complaints that credit unions are specially protected institutions because they do not pay federal income tax.
Indeed, if federally insured credit unions bore the same tax liability as banks in the first half of this year, their aggregate return on assets would have slumped from 0.86% to 0.56%, lower than the 0.61% average return posted by banks. The figures, however, exclude institutions that joined the insurance fund this year.
Credit union officials nevertheless contend that their profitability rests more on good management than on special protection. At midyear, they noted, the ratio of delinquent loans to total loans at federally insured credit unions was 1.6%, compared with 6.1% at banks.
Of course, federally insured credit unions are not floating on clouds. They, too, face slack loan demand and shrinking interest margins. A midyear NCUA report suggested that many institutions may have to cut dividends and shrink assets to build capital ratios.