CUNA's March Stats: Savings Growth Tops Lending Again Adding to Margin Pressure

MADISON, Wis.-Slowing loan growth and gaining share growth led to a significant drop in the loan-to-share ratio between February and March 2006, according to CUNA.

The group's Monthly Credit Union Estimates show credit union loan growth up half-a-percent in March from the previous month with “other mortgages” leading the way at 3.0% growth. While fixed first mortgages, other loans, unsecured personal loans, and new and used car loans were up, credit cards, adjustable rate mortgages and home equity loans were down slightly. Delinquencies dropped to the lowest point in a year at 0.61% for the month.

On the flip side, savings balances rose 2.4% in March, but with a payday falling on the last Friday of the month that figure could be inflated. “Having a payday on the last day of the month is a real big deal,” CUNA Senior Economist Mike Schenk said, explaining that it artificially inflates savings growth. He also pointed out that there was also the potential of an extra payday with five Fridays in March. According to CUNA's monthly estimates, regular shares were up 4.2%, while certificates trailed at 1.5%, individual retirement accounts grew at 1.3%, and money market accounts were up 1.2%.

By comparison, year-to-date loan growth at the end of the first quarter last year stood at 1.31%, the highest in at least the last five years. As of March 31, 2006, year-to-date loan growth was 0.83%, the lowest in at least the last five years. Savings were up 3.12% for the first quarter, up some from the 2.93% credit unions posted last year.

The combined effect dropped credit unions' aggregate loan-to-share ratio from 79.2% in February to 77.8% in March. At the same time, credit unions' average capital-to-asset ratio fell slightly from 11.1% to 11.0%.

Credit unions' share of the nonrevolving loan market is up from 14.6% a year ago to 15.1%. Banks and savings institutions were also up 0.3% each from a year ago.

“These are year-to-year comparisons and my guess is this is probably happening because generally we've been doing a really good job in the new auto market,” Schenk said. Finance companies have been less aggressive and credit union rates are far better than the banks, he said, but credit unions cannot take that joyride forever. After 15% growth over the past year in the new auto lending market, Schenk said he expects that growth to drop off markedly, in part due to less “wealth-effect” spending. Rising fuel costs may push some consumers to purchase more fuel-efficient vehicles, but it will not be enough.

And, as lending growth dies down across the board, margins will be pinched even further. “These pressures have not and will not ease. It will become more obvious over the next six to nine months,” Schenk forecast. Credit unions, and others, will be looking to make more investments and are relying more heavily on certificates to bring in funds, which in turn increases funding costs for credit unions. Schenk said CUNA is forecasting a 0.7% return on average assets at year-end. While an ROA below 1.0% might give credit unions a 2 in the CAMEL rating system, that is not necessarily a bad thing, he added. -

scooke@cutimes.com