WASHINGTON—Savings growth outpaced loan growth again in March, resulting in an average loan-to-share ratio of 81.65% in March down from 82.12% in February, according to CUNA’s latest Monthly Credit Union Estimates.
Credit unions’ liquidity has been generally increasing since last summer.
“Liquidity is critical to serving members in the context of the COVID-19 recession. We expect savings growth to continue to grow faster than loan growth for the rest of the year,” said Samira Salem, CUNA senior policy analyst. “In fact, we expect April data to show a massive increase in deposits mostly due to stimulus checks and unemployment benefits. This will further increase liquidity but will put downward pressure on earnings.”
March savings balances grew 0.89%, down from 2.17% in February. Year-to-date savings balance growth for the first quarter of 2020 registered a solid 4.31%.
Share draft growth in March declined to -2.43% from a strong 5.37% in February. The last time March share draft growth was negative was in 2015, Salem said.
“The contraction in share draft growth this time around maybe because some members might have lost jobs as a result of the COVID-19 economic slowdown so their direct deposits might have dried up,” Salem said. “In addition, members may be turning to these accounts for more urgently needed liquidity.”
Regular share drafts fell slightly to 2.30% in March from 2.83% in February. Despite the low interest rates, money market account growth remained solid coming in at 0.94% down slightly from 0.99% in February.
Searching for Safety
“This likely signals that members are searching for safe places to keep their liquid savings,” she said. “By contrast, certificates of deposit grew 0.28% in March down from 0.42% in February, suggesting that in the context of the COVID-19 pandemic members might be getting nervous about tying up their money.”
The March credit union monthly estimates show the pace of credit union loan growth increased slightly to a modest 0.32%, up from 0.23% in February.
“Despite historically low interest rates, we expect the overall pace of loan growth to slow further as the effects of the COVID-19 recession intensify,” Salem said.
Mortgages Lead Way
Fixed mortgages drove credit union loan growth in March; they grew at a solid rate of 1.31%, up from 0.99% in February. The ultra-low interest rate environment will likely stimulate continued growth of mortgages, particularly refinances, Salem said.
Unsecured personal loan growth also increased in March to 0.75%, up from -1.77% in February.
“This represents the fastest March growth in unsecured personal loans since 1994 and may signal that consumers are turning to unsecured personal loans for needed liquidity,” Salem said. “By contrast, credit card loan growth dropped again in March, coming in at -1.36% compared to -1.22% in February. This is not surprising given that consumer demand and spending has plummeted as a result of COVID-19.”
Contracting Auto Sales
Ward Intelligence reports that new auto sales in the U.S. contracted 27% in March due to the COVID-19 induced economic slowdown.
“In this context, it’s not surprising to see that credit union new auto loan growth contracted -0.88% in March, despite low interest rates,” Salem said. “This represents the largest contraction in new auto loans since April 2011. By contrast, used auto loan growth declined slightly in March to 0.31% compared to 0.43% in February.”
According to the March monthly credit union estimates membership growth registered 0.12% up from 0.07% in February. This is significantly slower than the rate of membership growth last March (0.39%). Contributing factors include the slow pace of auto loan growth, combined with the effects of economic slowdown due to COVID-19, Salem said.
CUNA economists expect the rate of membership growth to slow further as the COVID-19 recession sets in.