CU Insight

NEWS RELEASE
Credit Union Economics Group (CUEG)
www.cueg.org

For more information:
Patty Briotta, NAFCU, (703) 842-2820, pbriotta@nafcu.org
Jessica Lewis, NAFCU, (703) 842-2263, jlewis@nafcu.org

SAN FRANCISCO  – A group of the credit union industry’s leading economists told the National Association of Federal Credit Unions (NAFCU) 44th Annual Conference & Exhibition attendees Thursday how credit unions are faring in a slowly recovering economy and how credit unions should be aware of emerging risks as they continue to provide needed financial services to their members.

Participating in the Credit Union Economics Group (CUEG) panel discussion were NAFCU Chief Economist Tun Wai, National Credit Union Administration (NCUA) Chief Economist John Worth and CUNA Mutual Group Chief Economist Dave Colby.

“One of the goals for the CUEG group is to provide important information to credit unions for their planning purposes,” said Wai. “With all the changes occurring in the consumer finance arena, it is important for credit unions to hear what is happening on the economic front and be prepared for the future.”

Wai provided attendees with one of several snapshots of the credit union industry. He said credit unions saw lending growth slow significantly, from a positive 1.2 percent in 2009 to a negative 1.3 percent in 2010, and declined further by 1.6 percent during the first quarter of this year. 

Despite this slowdown, there were improvements in return on assets from 51 basis points in 2010 to 74 basis points as of March 2011. “This improvement was mainly due to the lower cost of funds and lower loan loss provision expenses,” Wai said.  Savings and total assets grew at a modest pace of 4.5 percent and 3.4 percent, respectively, in 2010, but grew at an annualized rate of 12.8 percent and 10.9 percent respectively during the first quarter this year. 

As to the CUEG forecast, Wai pointed out that economic growth in the near term will be sluggish.  “Of particular importance to credit unions will be the determination of when the Federal Reserve will increase interest rates,” said Wai.  The CUEG forecast does not see a less accommodative monetary policy occurring until some time next year.

Worth gave the federal regulator’s economic perspective during his discussion.  Worth provided an overview of economic conditions and outlook, highlighting key risks and opportunities for credit unions. Worth’s presentation focused on the likelihood of continued improvement in economic conditions, but at a slower-than-hoped-for pace. 

In particular, Worth highlighted that the significant job losses suffered as a result of the financial crisis and the slow process of deleveraging will likely keep unemployment elevated well into 2013.  Similarly, the housing market will be slow to rebound.   Worth also focused on the wide variation in economic conditions by the state, county, and even city levels.  Finally, Worth discussed the unusual interest rate environment, highlighting risks for credit unions that have continued to add excessive amounts of long-dated fixed rate products – like mortgages – to their balance sheets, even as yields on these assets remain near their lowest level in more than 50 years.

Colby also advised credit unions on the future.  “Forget the charts, graphs, and statistics. It is what your members feel that is important. Our best opportunities are centered on dedication to our members’ financial well-being,” Colby said. 

He then focused his discussion on the challenges credit unions are facing.  “The near-term challenges to credit unions adversely impact the bottom line and our ability to replenish capital. This in turn constrains our ability to grow,” Colby said. 

“Longer-term, the greatest challenge facing our industry is relevance, as our member demographics clearly point toward more diverse needs. Will we have the capital to expand products, services and delivery channels to meet rapidly evolving and expanding member needs?” Colby asked.

CUEG is a working group of credit union officials located throughout the country who are dedicated to the current and future financial well being of the credit union movement. CUEG’s objective is to provide credit unions with consensus macroeconomic forecasts and industry trend analyses that will be helpful in their planning and operations. This independent, non-profit group also provides a credit union perspective on national and regional economic trends by exchanging information with the NCUA, the Federal Reserve Board and the various Federal Reserve District Banks.

CUEG prepares a regional economic and descriptive credit union trends report bi-annually as well as a quarterly consensus macroeconomic and industry-trend forecast, available at www.cueg.org.

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