CUs' position to improve as labor, housing stabilize

MADISON, Wis. (2/4/10)--As labor and housing markets stabilize, credit unions' financial position should improve, according to a Credit Union National Association (CUNA) economist's analysis of CUNA's monthly sample of credit unions.

"Periods of great economic stress create significant dynamics for financial institutions," Steve Rick, CUNA senior economist, told News Now. "The 'great recession' of 2009 led to significantly higher credit union loan delinquency rates, lower credit union loan-to-share ratios and a plummet in credit union loan growth. As the labor and housing markets stabilize in 2010, so too should credit union, loan growth, asset quality and liquidity position."

Credit union loans outstanding decreased 0.1% during December, but increased 1% during 2009. That's down from a 6.9% increase during 2008. In December, credit card loans increased 2.5%, followed by unsecured personal loans (0.8%) and home equity loans (0.6%). Used-auto loans remained constant, while adjustable-rate mortgages declined 0.1% and other mortgages fell 1%. Fixed-rate mortgages dropped 1.5% and new-auto loans decreased 2.0%.

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Credit union loan balances rose less than 1% in 2009, the slowest pace since 1943 and down from the 6.7% growth rate reported in 2008, Rick said.

"Job creation in the first half of the year should lead to self-sustaining economic recovery this year," he added. "This will reduce the extraordinarily high level of household economic uncertainty and therefore lead to increased borrowing and spending. We expect credit union loan balances to rise 3% to 5% in 2010, lower than the 8% to 10% loan growth we usually see after a recession year.

"The change is due to the fact that the 'great recession' was a balance sheet recession and not your typical inventory-correction recession," Rick said. "Consumers will be focusing their financial efforts on saving more and reducing debt levels in an attempt to repair their battered balance sheets."

Credit union savings balances increased 0.6% in December, and rose 10.6% during 2009. During December, share drafts led savings growth, increasing 3.8%. They are followed by individual retirement accounts (2%), and money market accounts (1.1%). Meanwhile, regular shares and one-year certificates decreased 0.3% and 1.5%, respectively.

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Credit union 60-plus-day delinquencies remained at 1.8% in December 2009.

"Credit union loan delinquency rates rose by a record amount in 2009," Rick said. "Overall credit union loan delinquency rates finished the year at 1.84%, up 47 basis points in one year. Delinquency rates were at their nadir--0.6%--in the summer of 2006, right when home prices were peaking and the unemployment rate was 4.5%, less than half the current 10%.

"With the unemployment rate expected to reach its apex in the second half of this year, credit unions should budget for rising loan charge-offs through the first half of the year and then leveling off by year-end," Rick added.

The loan-to-savings ratio decreased slightly to 76% in December from 76.9% in November. The liquidity ratio---the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities--remained at 19%.

The movement's overall capital-to-asset ratio stayed steady at 10% in November 2009. The total dollar amount of capital for credit unions is $89 billion.

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