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Loans outpace savings despite recession
MADISON, Wis. (1/5/09)--Credit unions’ loan growth for November outpaced their savings growth, an anomaly given the recession, according to a Credit Union National Association (CUNA) economist interpreting CUNA’s Monthly Credit Union Estimates.
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Loans for the month grew 7.5% over November 2007, while savings grew 6.7% during the same period. “For a recession, that’s unusual,” Steve Rick, senior economist at CUNA, told News Now. “Typically people retrench and pay down their debt. This is an aberration, likely caused by banks’ tightened lending strategy. The aberration will continue as long as banks don’t have an appetite to lend,” Rick said. The loan growth is good news, he said, adding, “Credit unions are still making loans. It’s better to put the money in loans than in short-term instruments.” Still, loans in a recession mean more delinquencies. “Delinquencies jumped 10 basis points (b.p.) from the previous month and 39 b.p. over a year ago,” Rick said. The increase “is directly related to job losses. We’re losing jobs at an accelerating pace and it will get worse throughout the year.” New-auto loans are still in the tank with the biggest decline in more than 20 years, he said, noting low consumer confidence as a key factor. However, “used-auto loans picked up significantly from last year.” Rick said that during the credit crunch, the banking sector is shunning used-auto loans. Home-equity loans turned around in the last year, up 11% year-to-date, compared with a minus 1.6% for the same period in 2007. “This is unusual because falling home prices are wiping out homeowners’ equity, but the interest rates are so low, some homeowners are using home-equity loans to finance their spending. They’re down to the very last remnants on their balances and we’ll see more people hitting a ceiling in their borrowing limits,” Rick said. These loans are taking business from credit unions’ credit card portfolios. “Credit card growth is anemic, with growth at 3.9% year-to-date, a significant turnaround from the 9.3% for the same period last year. People are paying off their credit cards because they’re worried about jobs, debt and deleveraging,” he said.
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Rick noted that credit union borrowing is at $42 billion, a 67% increase from the $25 billion last year. “Credit unions want to keep increasing their liquidity,” he said. As for savings growth, money markets were the fastest growing savings vehicle--up 14%. “Everyone wants their money to be liquid rather than be locked up in certificates of deposit (CDs),” Rick said. With the falling prices in the stock market, depositors want safety. “In the Safety, Liquity, Yield (SLY) equation, savers want return of their capital, not return on their capital. Right now in the SLY equation, safety and liquidity are dominant,” Rick told News Now. Use the link to access the Monthly Credit Union Estimates for November.
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