Loan Participations Offer a Solution to Pressures on Credit Union Earnings

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Among the many challenges posed by the COVID-19 pandemic to lives and livelihoods, credit unions need to be concerned about their own financial health. Accelerated share growth as members hoard cash, coupled with weak loan demand due to economic uncertainty, may leave credit unions awash in liquidity and starved for interest-earning assets. Fortunately, there is a solution, in the form of loan participations, to absorb excess liquidity and bolster assets with attractive yields.

Credit unions were showing signs of excess liquidity even before the economic impact of COVID-19. According to the NCUA, share growth for federally insured credit unions was 8.2% in 2019, up 300 basis points from 2018. Conversely, loan growth slowed to 6.17%, which is well below the 9-10% growth rate of the past few years and also substantially behind share growth.