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CUs asset quality shows some deterioration
MADISON, Wis. (3/4/10)--Credit union asset quality continued to deteriorate in January, with the delinquency rate rising six basis points to 1.92% from year-end 2009, according to a Credit Union National Association (CUNA) economist’s analysis of CUNA’s monthly review of credit unions for January. “The last time credit union loan delinquency rates were this high, Ronald Reagan was president,” Steve Rick, CUNA senior economist, told News Now. “Over the recent business cycle, credit union delinquency rates reached their nadir in April 2006 with a reading of 0.53%. “Credit unions should expect loan delinquency rates to rise further over the next few months,” Rick added. “Expect job creation to be weak for the next six months because firms are still reluctant to bring on new workers during this time of great economic and government-economic-policy uncertainty. In other words, firms are having a hard time determining the marginal benefit and marginal cost of an additional worker.”
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The rise in long-term unemployment is a serious concern for credit unions’ asset quality, Rick said. “There are currently more than six million people who have been unemployed for more than six months, up from one million two years ago,” he explained. “And the number is still rising. Many long-term unemployed are facing severe financial difficulties with little hope of landing a job anytime soon.” Credit union loans outstanding decreased 0.5% during January, down from a 0.3% increase during January 2009. Fixed-rate mortgages led loan growth, rising 0.4%, while used-auto loans and home equity loans each declined 0.1%. Unsecured personal loans dropped 0.5%, followed by other mortgages (0.9%) and new-auto loans (1.5%). Credit card loans also decreased 1.5%, and adjustable-rate mortgages fell 1.9%.
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“Credit union loan balances fell for the third consecutive month in January,” Rick said. “Weak loan demand on the part of members and loan sales on the part of credit unions is responsible for the remarkably low 0.2% growth in loan balances over the last year.” Credit union savings balances decreased 0.4%, down from a 1.7% increase during January 2009. Money market accounts rose by 1.5%, followed by regular shares, which increased less than 0.1%. Individual retirement accounts declined 0.8%, followed by one-year certificates and share drafts, which dropped 1.1% and 2.7%, respectively. The loan-to-savings ratio remained at 76%. The liquidity ratio--the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities--stayed at 19%. The movement’s overall capital-to-asset ratio in January remained at 10%. The total dollar amount of capital is $90 billion.
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