Loan growth shows dramatic rise

In a typical year, average credit union loan growth is 8%. If 2022 continues as it did over the first six months, CUNA Chief Economist Mike Schenk says credit unions would see loan growth of 20%--the fastest pace since loans grew 25% in 1984.

But Schenk doesn’t think credit unions will reach that level this year.

“The essential point is that loans are growing very quickly,” Schenk says. “I don’t think the current pace will continue for the rest of the year. However, in the near term, I expect additional solid growth.

“People know the Federal Reserve is going to stay aggressive,” he continues. “That means consumers generally will stay focused on borrowing before rates top out. When we get that data, I’m pretty sure July will reflect an acceleration.”

Overall credit union loan balances increased nearly 16% year-over-year in June and 10.2% in the first six months of the year, according to CUNA’s Monthly Credit Union Estimates.

The nearly unprecedented loan growth was unexpected, despite Schenk entering the year with relative optimism. Uncertainty due to the pandemic caused consumers to put off most big-ticket purchases, and demand that did exist was often unsatisfied due to supply chain disruptions.

CUNA’s spring quarterly forecast predicted loan growth of 8% in 2022 and 7% in 2023, compared to 7.5% in 2021.

Auto loans led credit union loan growth early in 2022, with balances increasing more than 16% year-over-year and 12% as of June. Credit unions made $460 billion in auto loans, roughly two-thirds of which were used auto loans.

If recent growth continues, credit unions would be on track for 24% growth in auto loan balances in 2022, Schenk says. Only 1994 reflects faster 12-month growth over the past 30 years.

Members save $1,500 on auto loans compared to what they’d pay at a bank, which translates to a year’s worth of gas, Schenk says. “Access to affordable auto loans is a critically important component of consumer financial well-being. If people finance at a credit union, they'll save enough money to buy gas at current rates for the next year.”

Credit unions also are seeing broad-based loan growth, with $1.4 trillion dollars in loans outstanding at the end of March 2022, according to NCUA. This represents 7.9% of the household credit market.

Mortgage-related debt accounts for 51% of total credit union loans, autos account for 32%, and unsecured loans for 10%.

“Credit union loan growth has been broad-based with each key portfolio growing at double-digit annual rates,” Schenk says. “In addition, the combination of low unemployment, fast wage growth, and overall fast loan growth means credit union asset quality remains at all-time highs, with both delinquency and net charge-off rates at their lowest levels in modern history.”

Schenk expects strong loan growth to continue as supply chain disruptions ease and consumer spending remains healthy.

“Growth will continue, but the pace may slow in the fourth quarter,” Schenk says, due to continued inflation and a rising federal funds rate.