There are 7,691 federally insured credit unions in the
US, and, as a whole, the sector has benefitted from strong deposit
and lending business in the first half of 2009. Total sector assets
were up 7.3 percent to $870 billion, collectively making the sector
a key player in US retail banking. Charles Davis reports from the
US.
Insulated to some degree by their unique governance structure
and conservative culture, America’s credit unions escaped the brunt
of the subprime mortgage debacle – but still felt the broader
economic slowdown.
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Compared with their commercial banking brethren though, credit
unions find themselves in excellent fiscal shape and are benefiting
from a reputation as a safe harbour for deposits. The difficulty
lies in convincing a gun-shy American public that it needs loans at
a time when capital ratios are soaring at US credit unions.
Credit union membership and member share
accounts grew across the board during the first six months of 2009
as people continued to seek the financial security and services of
credit unions, according to call report data submitted by the
nation’s 7,691 federally insured credit unions.
Pat Keefe, vice-president of the Credit Union
National Association (CUNA), said that while credit unions are
feeling the effects of increased delinquencies and slowing lending
rates, the industry is growing thanks to what he described as ‘a
flight to safety’.
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By GlobalData“Credit unions exist to serve their members,
and not purely to maximise profit, and in this sort of market, that
really resonates with depositors,” Keefe said. “There is a strong
perception among credit union customers that we’ll take care of
their money.”
In a presentation on 3 September on behalf of
credit union consultancy Callahan & Associates, John Olivo,
vice-president at Goldman Sachs Asset Management, said that the
second quarter had made the firm more optimistic about the economic
future, but cautioned that the market may still be looking for a
bottom.
“Going forward, we still have concerns about
the economy, and in 2010, growth will still be anaemic,” Olivo
said. “You combine that with a number of headwinds facing us, and
as the household savings rate continues to rise, you’ll see an
overall fiscal drag.”
According to the National Credit Union
Administration (NCUA), the independent federal agency that charters
and supervises federal credit unions, that flight to safety was
reflected in robust investment activity as member share deposits
increased significantly and lending grew as well. Regular shares
(deposits in checking and savings products) grew 10.8 percent.
In the first two quarters, $144.2 billion in
loans were extended to credit union members. This volume was 7.5
percent, or more than $10 billion, greater than the first six
months of 2008. Loan origination activity is even more important
when one considers the challenges to extending credit in this era,
said Keefe, who added that credit unions stand ready to lend even
more once the economic picture clears somewhat.
“The institutions are capitalised in such a
way that they could more than adequately meet the lending needs of
an expanded customer base,” he said. “The financial house is in
order, and the industry is kind of waiting on the consumer
now.”
A glance at the NCUA delinquency data bears
that out. Delinquent loans as a percentage of total loans increased
from 1.37 percent at year-end 2008 to 1.58 percent at 30 June 2009
– an increase, but far from a dramatic one. Real estate loans over
two months delinquent, as a percentage of total real estate loans,
increased from 1.2 percent at year-end 2008 to 1.62 percent at 30
June 2009. The percentage of total delinquent loans to all loans
increased 16.8 percent in the first six months of 2009, while net
charge-offs to average loans grew from 0.85 percent to 1.15
percent.
The delinquency picture is not bad at all, and
there is plenty of money to lend. Credit union loan originations
are up in just about every sector, even as the broader financial
services industry is reigning in lending activity. Still, credit
union experts worry that lending rates will trail savings rates to
such a degree that it serves as a drag on growth.
“The most important thing is the difference
between loan and savings growth,” said Mike Schenk, a senior
economist at the NCUA. “This will be the biggest threat credit
unions will have to deal with going forward.”
Dennis Pierce, CEO of Community America Credit
Union in Kansas City, Missouri, said at the Callahan presentation
that mortgage lending has been very strong in his market and that
deposit growth is significantly better, as is membership growth.
Pierce added that credit unions “have a really strong story to tell
right now”.
“We’re working to meet our members where
they’re at… We see a lot of people who need to reposition their
finances and we’re willing and able to work individually with
consumers to help manage their finances.”
Community America is concentrating on
financial planning and conducting “make-overs” with practical
budgeting tools that include social media. A blog on personal
finance by a branch manager is gaining readers by the day, he said.
“We are getting a lot better at fishing where the fish are,” Pierce
said.
SNAPSHOT
Federally insured credit
unions, half-year metrics
• Assets increased 7.3 percent to
$870.1 billion;
• Loans up 0.7 percent to $570.0
billion;
• Investments up 22.9 percent to
$203.6 billion;
• Net worth grew 1.3 percent to
$87.3 billion; and
• Membership increased 1.3 percent
to 89.7 million.
Source: National Credit Union
Administration
