Interest rate risk as the economy improves could be a concern for credit union managers, said the NCUA in its latest economic video analysis.
John Worth, the agency’s chief economist, discussed how credit unions can benefit from economic improvements while remaining vigilant about interest rate risks.
“The improving economy is a positive sign for credit unions and their members,” Worth said in his December Economic Update video. “Falling unemployment and improving consumer balance sheets are likely to help boost membership rolls, increase loan demand and improve loan quality.”
But, he said, credit unions are increasingly reaching for yield by lengthening the maturity structure of their investment portfolios.
“In a rapidly changing interest rate environment, this strategy can boost earnings today but result in significant challenges to credit unions later in the interest rate cycle,” the NCUA economist warned.