Why headwinds from deteriorating auto loans will whip credit unions in 2024
Credit unions' heavy consumer lending, especially in the auto sector, will contribute to a tight year. Bloated car prices during the pandemic and its aftermath may result in nasty surprises for lenders when consumers hit by rising rates turn in their keys.
Credit unions will face a squeeze in 2024 that will pull down return on average assets and challenge managements through most of the year, according to the inaugural edition of the Kroll Bond Rating Agency’s “U.S. Credit Union Compendium.”
The agency says credit unions are seeing pressures parallel to those that beset the banking industry, but with important differences due to each industry’s funding practices, typical loan concentrations, and approaches to liquidity.
One positive for credit unions versus banks is that they typically maintain much thinner investment portfolios because they tend to devote a greater portion of their assets to lending to members, according to Brian Ropp, managing director, financial institutions, at Kroll.
As a result, Ropp pointed out in an interview with The Financial Brand most credit unions don’t have the underwater investment portfolios that shadow many banks. Likewise, he adds, on the whole the industry has much less involvement in commercial real estate lending, a threat overhanging many banks.
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