WASHINGTON — CUNA Chief Economist Bill Hampel said credit unions' year-end 2006 economic figures were "particularly interesting stuff."
Though savings growth had been anticipated as the weakest since World War II, a surge in December pushed savings up to rank only among the five lowest years since that time. Hampel said savings ended the year around 4.5%, bucking the typical seasonal expectations with 1% growth coming in December alone. "It was somewhat affected by the 'payday' effect but it is against seasonal trends, which suggests that–November was pretty strong too–credit union members might be showing the fact that they might be done with the spending binge and might be ready to start building their savings again gradually," he commented.
Savings growth for 2005 was just 3.8%. Share drafts led the way in December at 4.1% growth, according to CUNA's Monthly Credit Union Estimates. Certificates were up 1.5%, while money market accounts and individual retirement accounts grew 0.6% and 0.4%, respectively. Regular shares were down 0.1%.
Recommended For You
Hampel pointed to the negative household savings rate for the 21st month in a row. "That's one of the reasons its hard to get savings balances into credit unions when people aren't saving much overall," he said. "People are borrowing to spend and not putting much into savings accounts in order to spend it. There's a headwind for credit unions in building savings until households start saving again."
On the lending side of the balance sheet, loans grew 0.6% in December and 8.7% for the year, down from 10.6% in 2005. Credit cards outstanding rose 5.0% in December, followed by "other mortgage loans" (2.0%), and unsecured personal loans (1.0%). Other loans, fixed-rate first mortgages, and adjustable-rate mortgages were all up slightly, while home equity and used car loans fell slightly.
Credit unions are doing fine, but it is tough navigating a flat to inverted yield curve, Hampel said. "The only thing you can do if the market is not growing, the only way you can grow is to gain market share, so you have to be more competitive and it's hard with a flat yield curve." You cannot just convert that money to loans at higher interest rates, he explained. "I think there are some things on the margins that credit unions can do to be more competitive. When you're not growing, you don't need to earn 1% on assets. There's no reason or excuse to have an 11.4% net worth ratio, so credit unions could be a little bit more competitive but that wouldn't restore really robust savings growth unless the household sector starts saving again." Hampel continued, "The loan/savings ratio ended the year at 82.8%. That's the highest since 1980. The net worth ratio in credit unions ended at 11.4%, which is No. 1 way too high and No. 2 the highest it's ever ended the year. And, another one, which I really don't quite believe yet–this could be based on our sample–was the delinquency rate in credit unions ended the year under one-half of 1%." He put a disclaimer on the 0.48% delinquency ratio for the year CUNA arrived at, saying it could be an anomaly of the sample credit unions. "If you're delinquency rate is that low, you're not taking enough risk in lending," he commented, but he also noted that loan growth has been "pretty decent," so credit unions are not turning down loans either. They're Here
"Another thing that's a little surprising that snuck up on us was that member growth was pretty good. Members rose by 2.3%, which is…moving in the right direction," Hampel said. Recent years have put credit unions at below 2% membership growth. Though he admitted you cannot tell how much of this growth might come from indirect lending, he said, "Indirect lending brings new members who then go away. I think though that indirect lending has been going on long enough in a big way in credit unions that we should now be seeing not only new members coming in from indirect lending but paid off loan members being culled from the records so I think this increase in membership growth might be more substantial than just an indirect effect." –[email protected]
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
