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WASHINGTON-CUNA economists have predicted more of the same for 2005. According to CUNA’s Economic and Credit Union 2005 Forecast, credit union savings growth will continue to trudge along in 2005, likely around 6%. Stronger economic growth, which the economists project will be around 3.6%, will ease members’ concerns over job losses, and steadily rising stock prices will lure more funds away from credit unions’ savings balances. CUNA said the “fundamentals of the U.S. economy suggest that a self-sustaining recovery will continue.” In addition, CUNA expects job creation will remain modest and unemployment will fall to around 5.2% by year-end. The economists expect loan growth to slow in 2005 to about 10% as interest rates creep upward and demand falls. Since much of the loan growth of the last three years has been concentrated in real estate, which is generally low risk, asset quality, measured by loan delinquency and charge-offs, will remain solid in the coming year. CUNA’s economists also said that the growing economy should lead to a reduction in bankruptcy filings and associated charge-offs. Credit unions’ return on assets will continue to fall to around 0.85% in the coming year. “Absent significant increases in non-interest income or additional interest rate risk, a flatter yield curve will reduce net interest margins and therefore net income,” the forecast read. “CUNA’s economists are predicting a drop in net income this year, to an 85 basis point ROA from last year’s 95 bp,” CUNA Chief Economist Bill Hampel explained. “The reason for the drop is we expect the yield curve will continue to flatten as shorter term interest rates rise more than longer term rates do. That will squeeze credit union net interest margins. “For the vast majority of credit unions, this expected decline in net income will not be a problem. First, credit unions are already very well capitalized, so they don’t need to further increase net worth ratios. Second, we are also forecasting soft savings and therefore asset growth this year due to the strengthening economy. With slow asset growth, less net income is needed to maintain a given net worth ratio.” However, capital-to-asset ratios are expected to rise in 2005. Taking a bird’s eye view of overall economic conditions, the CUNA economists said the fed funds rate will rise to 3.5% by the end of the year and reach 4.5% sometime in 2006. The 10-year Treasury interest rate will rise, and, if the dollar continues to fall, foreign invests will drop from the bond market driving those rates significantly higher. At the same time, the Treasury yield curve will flatten as short-term rates rise faster than long-term rates, reducing the favorable interest rate environment of the last few years. [email protected]

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