DALLAS—Despite an increase during the second quarter in credit unions’ share of the lending market, as well as a similar overall increase in consumer credit, one analyst is noting again that the overall numbers are hiding painful reality in credit unions—large CUs are performing well, while the rest of the industry struggles.
“An increase in consumer credit, particularly in non-revolving credit, is encouraging to the economy and in the interest of the nation’s credit unions,” said Brian Turner, executive director with Meridian Alliance. “However, second quarter performance results continue to show relative weakness in loan originations for the industry. Despite a 9.2% increase in loans outstanding, most of the gain was realized in the industry’s larger credit unions ($500 million or greater) which represents 73% of industry assets but only 8% of the number of credit unions. This suggests that the remaining 92% of the industry (in numbers) collectively experienced a 0.4% increase in loans this year.”
Credit union market share increased to 10.0%, up from 9.7% at the end of 2015 and 9.1% in 2014, Turner reported. Revolving share was little changed at 5.4% and non-revolving share moved up to 11.6%.
“This suggests credit unions continue to attract a sizeable portion of the recent demand for automobile financing or have experienced a lesser amount of runoff. Annualized vehicle sales stood at 17.2 million units, down from 18.2 million this time last year and 18.0 million at the beginning of 2016,” said Turner.
Overall, the Federal Reserve reports consumer credit increased at a seasonally adjusted rate of 5.8%. Revolving credit increased at an annual rate of 3.4%, while non-revolving credit increased at an annual rate of 6.7%. Consumer borrowing has increased $87 billion in 2016 reaching a total of $3.6 trillion. Annualized growth reflects a $90-billion increase in the category that covers auto loans and student loans and a $3-billion decrease in credit card borrowing.
“Uncertainty in the economic climate strongly warrants risk measures being taken to protect institutions from adverse credit and liquidity risk rather than any focus being directed on interest rate risk,” said Turner. “Therefore, it is recommended institutions curtail deep cuts in loan quality originations by restricting issuances below B+ paper. The total return profile of the lower yielding prime paper is greater than the expected return from <B+ paper with higher rates but greater loss exposure over the next two years.”