Savings Growth at the Expense of Lending
As members continue to keep their focus on paying down debt, the industry’s savings rate has emerged and remained in a hale and hearty state.
Member savings picked up fractionally in June primarily due to a 1.3% month-only gain in regular shares, according to CUNA Mutual Group’s August “Credit Union Trends Report.” This component of member savings, which represent 31% of all savings, “is up a healthy 8.9% year to date and an astounding 10.8% since June 2010.”
“Growth occurred despite rates falling to a new low of 0.34%,” CUNA Mutual economist Dave Colby noted, adding in total, member savings were up 3.3% through the first half of 2011 and 4.5% over the past year. While current results look like a typical post-recession trend, usually deposit growth slowdowns are accompanied by a pick-up in loan growth, he offered.
“Member households continue to reduce debt as their primary balance sheet repair strategy. Small increases in savings may represent a flight to safety from the equity markets,” Colby said.
Still, despite a fractional rate increase in one-year certificates of deposit to 1.16%, overall total CDs were down 3.1% year to date and 5.3% since June 2010, according to the data.
While savings are up, lending continues to limp along. Part of the reason may be the shift toward paying down debt, which might include not taking on new loans. Despite a $4.8 billion gain in CU loan portfolios seen each month of the second quarter, total loans are 0.4% YTD and 0.5% over the past year.
Recapture opportunities still exist for CUs, Colby said. After the market turmoil in early August, he said it is once again time to aggressively pursue members and find loans to re-write and encourage taking advantage of historically low interest rates. He acknowledged yield spreads won’t be great, but the alternative is even lower yielding short-term investments.