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CUNA CU savings to stay steady loans to rise
MADISON, Wis. (4/4/11)--As the economy grows, credit unions' saving balances are expected to stay steady and their loan balances are expected to rise during the next two years, according to Credit Union National Association (CUNA) economists, who met last week to update their outlook for economic conditions and credit union operating results.
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"In short, we now believe that the U.S. economy will grow above trend in 2011 and slow to 3.25% in 2012," said Senior Economist Steve Rick in his summary for CUNA's U.S. Credit Union Profile: Year-End 2010 Summary of Credit Union Operating Results. The profile, as of Thursday, can be accessed on CUNA's site by using the resource link. "Expansionary monetary and fiscal policy along with the natural dynamics of the business cycle will support economic growth in 2011. Economic growth will slow in 2012 as government stimulus programs are withdrawn," said Rick. "At the same time core inflation will remain below the Federal Reserve's implicit target of 2% through 2012" and "labor markets will continue to improve but only slowly." That means the federal funds targeted interest rate "will not begin an upward path until the end of 2011. We expect a 25 basis-point interest rate move at the end of 2011 followed by a two-percentage-point increase in 2012. Thus, the Treasury yield curve should flatten in 2012," he added. He noted that with this backdrop, credit union savings balance growth is expected to remain at 5% for the next two years. "Despite rising disposable incomes, savings balance growth will remain below its five-year average of 6.3%, as members begin to spend again to relieve some pent up demand and deleveraging continues. Currently, members are paying off debt rather than saving any additional surplus funds due to the large interest rate differential between loan and deposit interest rates." CUNA's economists expect credit union loan balances to rise to 4% in 2011 and 6% in 2012. "After falling over 1% in 2010, we expect a rebound in credit union loan balance growth in the next two years as the economy and consumer confidence recovers. Auto loans, credit card loans and purchase mortgage loans will be strong growth areas," Rick said.
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"Credit quality will improve in 2011 and 2012 as job growth picks up. Provisions for loan losses will decline as credit unions shift from building their allowance-for-loan-loss account to maintaining the current level. This will help credit unions' return on assets to recover to 0.60% in 2011 and 0.70% in 2012. Rising net interest margins and cost containment efforts also will boost earnings. "We expect National Credit Union Administration assessments to come in at 20 and 15 basis points of average assets in 2011 and 2012, respectively. We don’t expect a significant drop in interchange income in 2011, but possibly a 10 basis point hit in 2012," he said. The U.S. Credit Union Profile contains detailed full-year 2010 data for credit union operating results and recent data for a variety of economic indicators. Use the resource link to access the report, which includes the current forecast and commentary.


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