NCUA Forecasts Decline in Corporate Assets and Capital Ratio
ALEXANDRIA, Va. -- Steepening of the yield curve will likely lead natural person credit unions to move some short-term corporate deposits to longer-term agency securities, leading to a decline in corporate credit unions' assets.
"However, the rise in longer-term interest rates may also slow consumer borrowing. If borrowing slows down, it will create more investable funds at natural person credit unions that could ultimately end up back on corporate balance sheets," NCUA said. According to the agency, a modest decline in corporate credit unions assets is expected by yearend but remain historically high.
NCUA explained that corporate credit union assets tend to increase during the first quarter of the year then decline slowly through August, remain flat from September through November with a slight up tick in December. Typically, according to NCUA, assets tend to decline about 8% from the high point until yearend but due to
the inverted yield curve last year, asset growth was faster in the fourth quarter than in the first quarter.
By yearend 2007, NCUA is expecting a decline in the capital ratio because of a "rapid increase" in moving daily average net assets, the average of daily average net assets for the month being measured and the previous 11 months. DANA, the denominator in the corporate capital ratio, is increasing on average $1.7 billion per month during 2007.
NCUA added, "During the last several years, the corporate system's net margin and net income has ranged between 34 bps and 36 bps and between 17 bps and 19 bps, respectively. If the steepening of the yield curve continues, I would expect net margin and net income to improve slightly over the last several years."