Paying Down Debt Is More Attractive Than Saving for Some Members
The slowdown of savings growth at credit unions may be attributed to members wanting to pay down their high-cost debt first.
It's one of the factors mentioned in CUNA Mutual Group's June "Credit Union Trends Report," which tracked figures through April. According to the data, on a year-to-date basis, savings were up 3.3% but far below the 7.1% gain for the same period in 2009. Overall, savings growth stood at 6.5% for the industry as of April.
Besides members paying down debt, some CUs are deterring deposit inflows with intentionally low rates in hopes of managing their capital ratios, wrote Dave Colby, chief economist at CUNA Mutual, in the report. Low yields have also inhibited growth, he added. The bulk of savings gains over the past year were attributable to money market accounts, regular shares and share drafts, the data showed.
"This tells us members believe interest rates are going to rise. The good news for credit unions is lower rates and members' desire for liquidity translates into a lower cost of funds," Colby noted. NCUA first quarter data showed a cost of funds of 1.33%, which was a 64 basis point reduction from first quarter 2009.
Meanwhile, at $923 billion, CU assets rose 1.0% in April with a year-to-date gain of 2.1% and annual growth of 4.8%. Colby said not all CUs are generating asset growth. NCUA data from the first quarter showed 1,887 CUs or 24% reported asset declines over the past year. Included in this group were 37 CUs with assets of more than $1 billion.
Just as overall growth is up but year-to-date gains are down with savings, the same is true with membership. Credit unions added 111,000 members in April. At 92.6 million, membership was up 535,000 through the first four months of the year but the year-to-date gain was 29% below the average over the past four years. Thirty-two CUs with a billion dollars in assets reported membership declines, according to the report. In total, 3,977 CUs, or 51% of all CUs, also reported membership declines between first-quarter 2009 and first-quarter 2010. Roughly 60% of these institutions had assets under $20 million.
"Our current forecast calls for annual membership growth to average slightly more than 1% over the next three years, with total membership reaching 95 million by the end of 2012," Colby said.
The downward slope can also be seen in loans. With the exception of member business loan growth, which continues to be strong, first mortgages, home equity and second mortgages as well as new car loans were down. Colby said CUNA Mutual's forecast of 1.7% annual loan growth in 2010 assumes modest credit card growth, positive MBL contributions, slightly higher retention levels for first mortgages and less downward pressure from vehicle lending.
"Even with growth turning positive by year end, the annual gain is 610 basis points below the long-term trend rate of expansion. Interest rate levels and, thus, mortgage retention strategies will ultimately dictate portfolio growth results," Colby explained. "Credit unions will need to aggressively recapture member short-term credit if they want to rebuild capital and help members' cash flow with lower rates."