Strong economic conditions combined with an increase in banking distrust could make 2018 one of the most successful years yet for credit unions, regarding both membership and loan growth.
Mike Schenk, vice president of research and policy analysis for the Credit Union National Association, said recently that credit unions should see another year of double-digit loan growth, according to a published report of his remarks during CUNA’s annual Governmental Affairs Conference. Schenk cited a low unemployment rate and his view that inflation will remain tame through 2018 and into next year. It would be the fifth consecutive year of loan portfolio growth topping 10 percent, according to CUNA.
When taking a look at the 2018-2022 National Credit Union Association strategic plan, the unemployment rate is projected to decline to around 4.2 percent in 2018. Consumer prices are projected to rise a little more than 2 percent annually, consistent with the Federal Reserve’s inflation target.
This is good news for credit unions, specifically smaller institutions. Most likely due to an increased distrust in large retail banking institutions, credit unions observed heightened membership and loan portfolio growth last year. Much of the banking distrust stems from large financial scandals, such as Wells Fargo’s creation of fraudulent accounts. According to the Credit Union Journal, in 2017 this led many credit unions to see the largest single-year growth in memory, with more than $1 billion in added deposits.
A Gallup survey conducted reflected on how consumer confidence in banks — which took a hit amid the bursting housing bubble in 2007 and 2008 and dropped further after the ensuing financial crisis — fell the most in the past decade, plunging from 49% in 2006 to 27% in 2016. Confidence in banks recovered slightly in the 2017 survey, but it remains below the average for 13 other institutions tracked by Gallup.
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Member Finacial Stability for Credit Unions
Credit unions, however, should still be aware of their members’ financial stability. CUNA’s senior economist, Jordan van Rijn, reflected during the GAC meeting on how “The economy is doing well, but as you guys might see among your members, they aren’t always doing so great”.
In an annual Federal Reserve survey on the economic well-being of US households, 44 percent of adults say they either could not cover an emergency expense costing $400 or would cover it by selling something or borrowing money. Additionally, under one-fourth of adults are not able to pay all of their current month’s bills in full.
Only time will tell on whether or not member financial health will reduce the projected success for credit unions in 2018. In the meantime, another potential avenue for growth is in member business lending (MBL) portfolios. Increased flexibility in lending limits under the NCUA’s new MBL rule provides an opportunity to meet the credit needs of member businesses. Some credit unions have implemented digital lending solutions and have automated back-end processes in order to make these smaller loans more profitable for the institution.
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