Fast savings, slow loan growth lead to lower loan-to-share ratio

August 5, 2020

According to CUNA’s latest Monthly Credit Union Estimates, the overall credit union loan-to-share ratio fell to 76.3% at the end of June, down from 84.4% at the end of 2019.

“The fast savings growth and tepid loan growth at credit unions has led to a rapidly declining loan-share ratio, increasing credit union liquidity,” said CUNA Senior Economist Jordan van Rijn. “Fueled by government stimulus checks, expanded unemployment benefits and consumer restraint, credit union deposits continued to grow at a record pace: savings grew 1.14% in June and are now up 13.26% year-to-date, the fastest mid-year growth since the 1980s.

“A falling loan-to-share ratio is historically associated with downward pressure on net interest margins and overall earnings at credit unions,” he added.

Nonetheless, the capital-assets ratio rose slightly in June, from 10.47% in May to 10.49%. However, it is still down significantly from 11.24% at year-end 2019.

Regular shares led the growth in deposits with a 3.29% increase in June, followed by money market accounts (MMAs) (2.14%), and individual retirement accounts (IRAs) (0.51%). Share drafts and certificates of deposit (CDs) were down -2.33% and -0.82%, respectively.

“Despite the pandemic, June loan growth was relatively strong at 0.49%, putting credit union year-to-date loan growth at 2.37% (a 4.74% annualized rate). However, this figure masks significant variation by loan category,” said van Rijn. “Historically low interest rates have led to very fast growth in credit union first mortgages, which grew 1.91% in June and are up 7.24% year-to-date through June. This represents the fastest mid-year growth in first mortgages since the height of the housing boom in 2008.”

After a dip during the first five months of the year, auto loans showed signs of recovery, with used auto loans growing 1.44% in June and total auto loans up 0.79%. However, at -0.26%, new auto loans continued their sixth straight month of decline.

Overall, total auto loans were basically flat (-0.09%) during the first six months of 2020.

Although credit card balances fell for the sixth straight month (-0.62%), personal loans grew a dramatic 5.60% in June.

“If this holds up, it would represent the largest monthly increase since 1999,” van Rijn said. “The substantial increase in personal loans likely reflects a combination of struggling consumers seeking emergency loans to cover short-term expenses, while well-off households invest in home improvements while waiting out stay-at-home orders.”

Nonetheless, besides first mortgages, used auto loans and personal loans, most other major loan categories fell in June, including credit cards (-0.62%), HELOCs/second mortgages (-1.91%), other mortgages (-2.37%), and other/commercial loans (-4.05%).

CUNA economists expect another round of stimulus checks to further bolster credit union deposits sometime in August or September. Unemployment benefits are also likely to be expanded, although at a lower level than the previous $600/week.

Credit union memberships grew 0.20% in June and are up 1.26% year-to-date. This is below last year’s mid-year mark of 1.83%, but reflects relatively strong growth considering the current recession.

At this pace, credit union memberships are on pace to grow about 2.50% for the year, slightly higher than CUNA economists’ forecasted annual membership growth of 2.00%.