Credit unions report strong loan growth in September

Loan growth at credit unions in September continued to rise, with the past 12 months' growth pace the fastest since before the Great Recession, according to the Credit Union National Association's (CUNA) Credit Union Monthly Estimates for September, released November 1.

"Credit unions reported strong loan growth in September, with balances rising 0.8%, compared to 0.5% in October 2012," said Steve Rick, senior economist at CUNA. "Over the last 12 months, credit union loan balances rose 6.7%, the fastest pace since 2008," he said.

Rick noted that "adjustable-rate, first-mortgage loan balances posted the biggest increase in September, rising 1.4%, and are up 5.3% over the last year.  New- and used-auto loan balances also grew faster than 1% in September and both posted around an 11% growth rate over the last year."

What's behind that growth? Rick attributed it to "both supply and demand factors," which "are driving the accelerated pace of lending: credit unions are lowering interest rates and loosening credit standards to increase the supply of loanable funds while stronger consumers' balance sheets are increasing the demand for loanable funds.

"Rapidly rising home and stock prices are creating what economists call a strong 'wealth effect,' whereby consumers feel wealthier and, therefore, borrow and spend more out of current income," Rick added.

Meanwhile, savings declined 0.6% in September, compared with a 0.8% increase in August, according to the monthly estimates. However, total savings for September was up to $926.3 billion, from $888.3 billion a year earlier.

Individual retirement accounts rose 0.5% during September from the previous month, with regular shares increasing 0.1%. Share drafts dropped 4.3%, one-year certificates declined 0.7% and money market accounts declined 0.1%, said the report.

Rick also noted that "credit quality is also improving with credit unions reporting a delinquency rate less than 1% in September, down from 1.17% in September 2012.  A 9% fall in the dollar amount of delinquent loans combined with a 6.7% rise in loans outstanding created the significant drop in the delinquency ratio.

"The delinquency rate should fall to 0.8% in 2014, back to the level reported before the onset of the Great Recession."

The report also noted that the loan-to-savings ratio increased to 70% in September from 69.1% in August, bringing the liquidity ratio (the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities) to 16.9%.

Total credit union membership continued climbing, with 0.4% growth in September to 98.7 million members across the U.S. The movement's overall capital-to-asset ratio rose to 10.4%, with total capital at $112 billion.