Dawit Kebede
Dawit Kebede, CUNA senior economist

5 key themes driving balance sheets

Expect a ‘normalizing’ operating environment in 2022, CUNA economists say.

January 11, 2022

Credit union financials will continue to be influenced by the dynamics of a COVID-centric operating environment in 2022.

“As the economy continues to expand, credit unions financials will return to pre-pandemic growth levels,” says Dawit Kebede, CUNA senior economist. “But there will be adjustments along the way as we recover from the effects of earlier restrictions and learn to operate within the uncertainty of a continuing global pandemic.”

CUNA economists identified five key themes that will drive credit union balance sheets in 2022:

1. Savings growth returns to normal

Savings increased dramatically during the pandemic as worried consumers put away money, including stimulus checks and unemployment payments, amid an atmosphere of uncertainty. 

“And because of social distancing restrictions, people couldn’t go out and spend their money,” Kebede says. “Now the economy is opening up. People are gathering with friends and family and are traveling. They’re spending money as they carry on with the everyday activities of their lives.”

CUNA economists predict credit unions will end 2021 with 12% savings growth and return to a historically normal 6% rate in 2022.

2. Low loan-to-share ratios continue

As consumers saved more, they shied away from taking on debt during the pandemic, although that’s changing as the economy improves. At the same time, they paid down debt. 

Credit unions’ 10-year average loan-to share ratio is about 77%. CUNA economists expect an overall 70% loan-to-share ratio in 2021 and 71.9% in 2022. 

“As loan growth increases and savings growth dies down a bit, loan-to-share ratios will slowly return to pre-pandemic levels,” Kebede says.

3. Loan defaults will rise modestly

Due to direct government support to households and forbearance rules, credit union loan defaults are low, contrary to the expectation of many.

Sixty-two percent of U.S. households used the second COVID stimulus payment to pay down credit card debt, Kebede says. As a result, delinquency and charge-offs reached historic lows.

As government support expires, default levels will rise slightly, Kebede says, but will remain lower than five-year averages.

4. Higher earnings for some

Because credit unions expected higher loan default rates during the pandemic, they set aside more for loss provisions. 

Reducing loss provisions led to higher earnings during the first half of 2021, although most increases took place at large credit unions. 

CUNA economists project overall credit union return on average assets of 0.95% in 2021 and 0.70% in 2022.

5. Capital levels recover

Credit unions’ net worth decreased slightly during the pandemic, Kebede says, as savings outpaced loan growth. 

Before the pandemic, credit unions’ five-year average net-worth ratio was 10.9%, Kebede says. He expects that to grow from 10% in 2021 to 10.2% in 2022.

Forging a Path
This article is part of Forging a Path, CUNA News’ special focus on what 2022 holds for the credit union movement, financial services industry, and the economy. Follow the conversation on Twitter using the hashtag #ForgingAPath.