PLANO, Texas–Credit union CEOs are confident strong lending volume will continue over the remainder of 2016.
According to Catalyst Corporate's Second Quarter 2016 Credit Union CEO Confidence Survey, credit union CEOs gave a 32.91 score in the index for "Loan Demand at the Credit Union in Six Months,” which is up 4.34 percentage points over the previous quarter and was the highest assessment for loan demand in a decade. In the second quarter of 2006, credit union CEOs set the same index at 33.99, Catalyst Corporate reported.
"Lending typically picks up in the second quarter of the year, but lower consumer loan rates have certainly helped," said Steven Houle, vice president of Catalyst Strategic Solutions' Advisory Service. "Since the Brexit vote on June 23, when British citizens voted to exit the European Union, interest rates have remained low. Thirty-year fixed mortgage rates, for example, have fallen close to 60 basis points since the start of the year and are currently below 3.5%.
"Current environment optimism is also being fueled by the fact that loan performance has been strong, with little change in credit unions’ allowance for loan losses," Houle continued. "It’s still a little early to forecast loan growth projections for next year, but the interest rate environment will play a factor. Financial market volatility always seems to be lurking around the corner, threatening to send borrowers quickly to the sidelines."
For one CU, 1st Gateway CU in Camanche, Iowa, second quarter loan growth, particularly in auto lending, was indeed strong, but CEO Pat Drennen said it is leveling off as competitors reduce their rates to try to capture these loans.
"While we're still seeing positive loan growth, we can't justify making loans at some of the low rates we're seeing from our competitors," Drennen said in a statement released by Catalyst Corporate. "We're not willing to lock in a 1.5% loan, and we have let some of those loans walk away. With a 100% loan-to-share ratio, strong income and strong total capital, we are using this opportunity to work toward increasing our net worth."
Meanwhile, when it comes to the economy overall, CEOs are also apparently better now than they expect to be in the future, or at least they are wary of expressing too much optimism too early, Catalyst Corporate reported. The overall Confidence Index increased close to a point in the current survey, rising from 30.41 to 31.34 quarter over quarter. The overall index has only reached that level two other quarters since 2007. However, CEOs indicated notably stronger confidence in the Present Situation Index (up 2.02) than the Expectations Index (up 0.39), Catalyst Corporate reported.
A breakdown of the Present Situation Index showed CEO confidence increased 2.8% for their members' current financial condition and 1.27% for their own credit union's current financial condition.
In contrast, Catalyst Corporate reported a breakdown of the Expectations Index, which showed an increase of less than half a percent (.36) for members' financial condition in six months and a confidence decrease of 1.67% for their own credit union's financial condition in six months.
Catalyst reported CEOs are anticipating a decline in share deposit growth for the remainder of the year. The index dropped 1.59 points from the previous quarter's survey.
Catalyst Corporate’s quarterly confidence survey – started in 2004 – was sent to 2,056 credit union CEOs across the nation in July 2016; 198 credit union professionals responded, for a response rate of 9.63%.
Using a scale ranging from negative (-100) to positive (+100), respondents registered their confidence levels in six key areas to create an overall index, as well as a snapshot of present-day feelings and future expectations. The areas CEOs were asked to evaluate are:
- Current financial condition of members
- Current financial condition of credit union
- Anticipated financial condition of members in six months
- Anticipated financial condition of credit union in six months
- Anticipated loan demand at the credit union in six months