Improving economy will boost CU earnings: CUNA forecast
March 31, 2015
MADISON, Wis. (4/1/15)--Improved economic and credit conditions, leading to higher interest rates in 2015 and 2016, will bolster credit union earnings, asset quality and capital, according to CUNA's recently updated 2015-16 economic forecast.
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"We do not see an interest-rate hike (by the Federal Open Market Committee) dampening growth," said Perc Pineda, CUNA senior economist.
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.
The forecast also calls for delinquencies to drop to 0.75% in 2016, for net charge-offs to decline to an average of 0.45% from 0.49% by 2016, and for the return on assets to remain at 0.8% for 2015 and 2016.
Also, capital-to-asset ratios will climb to 11% by the end of 2015.
"Strong earnings will mean that capital growth will outpace asset growth over the next two years, increasing the capital-to-asset ratio," the forecast said. "Credit union capital ratios will reach a record high of 11.2% in 2016, surpassing the previous record high last seen in 2005."
Nationally, CUNA economists believe the economy will grow 3% in 2015 and 3.25% in 2016. Inflation will remain below the Federal Reserve's target rate of 2% through 2016, and the unemployment rate will drop to 5% by the end of 2015 and 4.8% by the end of 2016.
As for the federal funds rate, the forecast calls for the Federal Reserve to begin raising rates in June, and push short-term interest rates up to 1% by the end of 2015 and 2% by the end of 2016.
When the Fed begins pushing rates higher, it will "act in a gradual and measured pace, avoiding a jolt in markets that have already strategized responses to an interest rate hike," the forecast said.