WASHINGTON — The Credit Union Economics Group is forecasting “healthy variations” in key economic indicators for this year, but the organization is more positive about 2008.

The group, comprised of various credit union representatives from across the country, predicted a 25-basis-point cut this year to the Federal Reserve's target rate. Long-term investment rates will see minor adjustments creating a flat to slightly positive yield curve over the next two years.

“With real estate loans contributing a substantial portion of credit union loan growth, the softening in housing may force credit unions to more aggressively pursue other lending opportunities. In total, we expect loan growth to slow in 2007,” CUEG Member Dave Colby, CUNA Mutual Group's chief economist, said.

CUEG predicted a modest decline in employment for this year. “Liquidity among credit unions seems to be growing noticeably faster than normal seasonal factors would suggest,” WesCorp Executive Vice President/Chief Information Officer Bob Burrell commented. “Member balances are well ahead of our forecast. Many credit unions have rolled out aggressive CD campaigns, and loan growth seems to be slowing down in the three key areas–residential mortgages, vehicles and member business loans.”

“Earnings compression among credit unions is expected to continue,” NAFCU Chief Economist Tun Wai explained. “The flat to slightly positive yield curve for loans and investments, coupled with a rising cost of funds, will be a challenge for credit unions this year.”

“However,” he added, “savings growth is still expected to be lower than loan growth in the near term.”

“The rising cost of funds and reductions in fee income and net interest margin will reduce return on assets (ROA),” Kendrick Smith, vice president/CIO at Eastern Financial Florida Credit Union in Miramar, Fla., said. “We have also noted in the Southeast, credit unions have seen a decline in non-interest margins due to the growing concentration of certain loan products that have thin risk-adjusted margins and a continued erosion of core deposits due to changing interest rate sensitivities.” –scooke@cutimes.com

Instant Insights /

CUEG Foresees 2007 Economic Growth Dipping but Positive in 2008

Related Stories

Recommended For You