PLANO, Texas (11/16/12)--Expectations for loan demand among credit union CEOs increased to their highest level in three years, according to Catalyst Corporate FCU's Third Quarter 2012 CU CEO Confidence Survey.
Catalyst said loan expectations have been trending upward in its surveys since first quarter 2011, when they registered -1.02. However, the most recent mark of 19.18 was a jump of more than six points from the previous quarter. The last time loan expectations approached that level was when they hit 20.65 in third quarter 2009, said the corporate, based in Plano, Texas
Credit union CEOs appear to be in a holding pattern regarding overall confidence in the economy. The index, based on a survey taken before the national elections, inched up by less than a point in the second quarter, to 24.03 from 23.25.
The survey indicates that expectations for both the financial condition of their institutions--which declined overall in confidence from last quarter--and the financial condition of their members--which increased from last quarter--to be better in six months than it is today.
"With loan growth up about 4% through the first three quarters of 2012, it isn't surprising that many CEOs are encouraged," said Brian Turner, Catalyst Strategic Solutions director/chief strategist.
"Peer data suggest that growth might be limited to larger credit unions, which have greater perceived risk appetites and capacity. Still, most credit unions with assets greater than $100 million did experience an increase in non-revolving credit this year. Loan growth in 2012 may not compare historically, but it is welcome news compared to last year's 1.2% growth and 2010's 1.4% decline," Turner said.
Marginal spreads between asset yields and funding costs continue to narrow, Turner said. "Fortunately, improvements in loan delinquency have offset much of the decline, helping to boost bottom lines," he added. "With the Federal Reserve reiterating the intent to retain overnight rates at their current level until mid-2015 and most credit unions retaining strong liquidity profiles, there will be little upward pressure on cost of funds over the next 12 months. In fact, credit unions should remain proactive in lowering share rates even further."
The principal driver to the current recovery is the employment sector, Turner said. "Job insecurity has squashed consumer spending--which represents two-thirds of the nation's gross domestic product (GDP)--over the past couple of years," he added. "Unstable consumer spending creates volatility in economic growth and impacts demand for loans. Employment is projected to improve slightly over the next 12 months, yet GDP estimates remain around 2.2%, slightly higher than 2012's 1.8% pace. GDP in 2013 should reflect improvement in consumer spending that hopefully will translate into higher loan demand, particularly for consumer loans."
Halliburton Employees' FCU in Duncan, Okla., said loans put on the books increased significantly throughout the year.
"At this time, we expect the trend to continue," said Chris Bower, president/CEO of the $118 asset credit union. "Following the lull in 2010 and 2011, many folks are now purchasing new cars. Plus, with all the publicity about 'historic low rates,' members have been inquiring whether this is the right time to refinance."
The credit union has also seen activity in direct and indirect auto lending, Bower said.
To capitalize on the lending increase, the credit union introduced a marketing campaign that provides incentives to members and employees when a loan from another institution is refinanced at the credit union.
"Loan officers actively monitor reports of member loans, and when they see paydowns, they contact the members to find out if they have refinanced elsewhere and if they are interested in bringing the loans back to the credit union," Bower said. "In 60% to 70% of the cases, we offer a better deal than they received elsewhere."
Bower said he believes that the severe loan underwriting restrictions of the past three years are beginning to loosen, as people who fell behind on payments gain better control of their finances, and that this will contribute to more loans in the future.
In other survey results, credit union CEOs indicated they believe share deposit growth will be flat during the next six months.
Begun in 2004, Catalyst Corporate's quarterly survey measures CEO confidence in the economy from very negative to very positive (-100 to +100) in six key areas.
The areas CEOs to evaluate include:
- Current financial condition of members;
- Current financial condition of the credit union;
- Anticipated financial condition of members in six months;
- Anticipated financial condition of the credit union in six months;
- Anticipated loan demand at the credit union in six months; and
- Anticipated share deposit growth at the credit union in six months