ALEXANDRIA, Va. (12/29/14)--Improved growth in the economy has benefited some credit unions but is likely also to bring interest rate changes that could be challenging, said National Credit Union Administration Chief Economist John Worth.
Speaking in the agency's latest economic update video, Worth examines the recent economic growth and what it could mean for credit unions.
"An improved labor market helps to support credit union performance. The rising jobs total and associated increase in consumer income is supporting gains in deposits and helps to increase membership rolls," Worth said. "At the same time, an improving jobs picture strengthens loan demand and improves loan quality."
While credit union results in the third quarter were "solid," Worth said, this growth is likely to have implications for interest rates and monetary policy.
"While nothing is certain, the improving economy is likely to bring changes to the interest rate environment in the coming year that could prove challenging to some credit unions," he said, adding that by 2016, the gap between long-term and short-term interest rates is expected to "significantly" narrow.
"That development is significant for depository institutions like credit unions, where net income is sensitive to the size of the net interest margin," Worth said. "Overall the projected rising interest rate environment and the projected narrowing of the term spread could pose challenges to credit unions. Especially vulnerable are those that have developed loan and deposit portfolios that are sustainable only in a falling or low-rate environment."
Worth also analyzed third quarter performance of federally insured credit unions in the video, which is available at the NCUA's YouTube page.