MADISON, Wis.—CUs should expect higher earnings over the next two years, pushing capital ratios to record levels, according to CUNA's recently updated 2015-16 economic forecast.
The trade association cited improved economic and credit conditions, leading to higher interest rates in 2015 and 2016, for the earnings and capital hikes, adding that credit unions should also expect gains in asset quality.
"We do not see an interest-rate hike (by the Federal Open Market Committee) dampening growth," said Perc Pineda, CUNA senior economist.
Strong earnings will mean that capital growth will outpace asset growth over the next two years, increasing the capital-to-asset ratio, stated CUNA. “Credit union capital ratios will reach a record high of 11.2% in 2016, surpassing the previous record high last seen in 2005."
Other findings:
- Credit union loan balances will climb 11% this year after a 10.4% jump last year, as households are expected to release pent-up demand for automobiles, furniture and appliances over the next two years, the forecast said.
- New-auto loans, credit card loans and purchase-mortgage loans will see strong gains in growth as well.
- After climbing by 4.5% in 2014, savings balances will rise 4% in 2015 and 4% in 2016, according to the new forecast. Further, memberships will expand at 3% in both 2015 and 2016.
- Delinquencies will drop to 0.75% in 2016, net charge-offs will decline to an average of 0.45% from 0.49% by 2016, and return on assets will remain at 0.8% for 2015 and 2016.
- Capital-to-asset ratios will climb to 11% by the end of 2015.