Credit unions have “exceptional” capital levels that will serve them well during lean times, says NCUA Chief Economist Scott Borger.
“It’s important to maintain that,” he told attendees at the CUNA Economics & Investments Conference Monday in Las Vegas. “Ultimately, it means that U.S. consumers are better off.
Fueling credit unions’ stellar financial performance and high capital levels are a strong job market and solid loan growth. But this doesn’t mean credit unions are immune to risk.
Borger outlines risks in three key areas.
1. Credit union lending
While home sales were strong in the second quarter, they declined from the first quarter, Borger says. Regionally, home sales were strongest in the South and West, and weakest in the Northeast and Midwest.
Emerging risks in housing include:
Regarding auto loans, total vehicle sales are slowing, and there’s a higher inventory of used cars.
“That equates to lower prices on used cars,” Borger says, with a possible corresponding deterioration in collateral.
2. Interest rates
The Federal Reserve is closely watching for signs of inflation. It predicts slowly rising rates over the next few years.
“From a regulatory point of view, know how your strategy, balance sheet, and more perform based on different interest-rate scenarios,” Borger advises. “A lot of different scenarios can be painted.”
3. Risks to the outlook
Several “wild card” issues could affect the economy and, therefore, credit unions’ financial health.
They include: