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Maintaining loan growth will be the challenge for 2008
MADISON, Wis. (1/4/08)--Credit unions during November saw significant pickups in growth of credit card lending, delinquencies, and mortgage lending, and will face the issue of how to maintain their loan growth during 2008.
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Savings growth in credit unions outpaced their loan growth during November, according to the Monthly Credit Union Estimates from the Credit Union National Association (CUNA). The overall loan-to-savings ratio--83.6%--was down a percentage point from October's 84.6%. Credit union loans totaled $545.8 billion in November 2007, compared with $508.9 billion for the same period in 2006. Loans outstanding increased 0.4% from October and grew 7.3% over the past 12 months.
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Leading the monthly loan growth were credit cards--up 2.2% in November. "This is significantly above the national average," said Steve Rick, CUNA senior economist, told News Now. November's growth brings the year-to-year growth for credit cards to 15.2%, "which is really strong, when compared with last year's year-to-year growth of 11.1%." While credit cards were the fastest-growing loans, they are also the most worrisome. Borrowers are piling up unsecured debt, which can be dangerous to both the lender and the borrower, Rick said. He attributed the higher card growth to falling home prices' impact on home equity loan growth, which fell -0.3% for the month and are down 13.3% for year-to-year growth. Overall delinquencies are up 20 basis points--to 0.89% growth in November from 0.69% in June. "Delinquencies are up across the board," Rick said, citing rises in card, mortgage and business lending delinquencies. Business lending delinquencies grew 1.66% in September, compared with 0.5% at year-end in December 2006. For the same period, mortgage delinquencies grew to 0.57% from 0.34%. "The good news is that credit unions have extremely low delinquencies, but they are trending upward," Rick said. Credit card delinquency growth rose to 1.20% from 1.05% in November, and December likely will be worse. CUNA economists are forecasting the delinquency growth rate to be 1% this year, which is still very low, he said. Other good news: mortgage lending in credit unions is still strong, with a year-to-year growth at 14.3% for fixed-rate mortgages and at 11.1% for adjustable-rate mortgages. "Mortgages are for large amounts and there's not a lot of risk attached because credit unions aren't seeing the problems associated with subprime mortgages," he added. As for auto lending, "the new-auto lending picture is difficult, with negative growth. The market will be in used-auto loans. The slowdown in the new-auto market means dealers will offer incentive financing and will be very competitive," Rick said. More people are buying used cars likely because of the "wealth effect" from falling home prices. "Dealers will get incentives to move the new autos, which will be tough for credit unions. The used-auto lending is the auto loan market for 2008." The big concern for 2008 for credit unions will be the slowing loan growth and how to maintain their loan growth. "We're forecasting loan growth at 5% this year and savings growth at 9%, Rick told News Now. Credit unions can mitigate the loan growth problem by being more aggressive in their lending. "Banks are tightening their lending standards so this is an opportunity for credit unions. They can be more aggressive and make more loans," Rick said. Credit union savings balances grew 1.6% in November and 6.3% the past 12 months. Savings totaled $652.9 billion in November, compared with $614.3 billion in November 2006. The liquidity ratio was 18% during November, up 1.4 percentage points from October. While the movement's overall capital-to-asset ratio dropped slightly to 11.5% in November from 11.6% in October, the total dollar amount of capital increased to $89.2 billion from $83.8 billion a year ago.
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