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CUNA Economists Predict More Loan Growth in 2017

Thu, Oct 6, 2016

Madison, Wisconsin

The latest economic and credit union forecast from CUNA economists predicts more impressive loan growth for credit unions in 2017. Overall, CUNA economists expect the economy to grow by 1.80% in 2016 and 2.40% in 2017.

Credit union loan balances will increase by 10% in 2016 and 9% in 2017, according to the September 2016 CUNA Economic and CU Forecast. Loan growth this year will be only marginally lower than the 10.5% loan growth of 2015.

“By and large credit union members are in better financial conditions today that the financial crisis is 8 years behind us,” said Perc Pineda, CUNA senior economist. “We see this in the uptick in savings and also in borrowing in the monthly data. The latter is facilitated by current low borrowing costs benefitting two sectors that continue to recover: housing and autos. The unemployment rate has come down substantially and I expect more job growth ahead sustaining healthy savings and borrowing by credit union members.”

As the economy continues to expand, U.S. households will to continue to release pent up demand for autos, furniture and appliances over 2016; and continue a slightly slower pace in 2017 year. New auto loans, credit card loans and purchase mortgage loans will remain strong growth areas.

Credit quality will remain healthy in 2016 and 2017, CUNA economists said.  The improving job market and fast loan growth (the denominator of the loan quality rations) will keep the delinquency ratio down to 0.75% in 2016 and 2017.  Net charge-offs will likewise decline to 0.5% in 2016 and in 2017. 

Credit union savings balances will grow by 70% in 2016 and 6% in 2017, CUNA economists said. As the Federal Reserve continues raising short-term interest rates this year and the next, the anticipated transfer of funds to money market mutual funds will finally materialize, they predicted. With inflation in the offing and the windfall from lower oil prices disappearing, cautiously optimistic credit union members will seek higher returns.

Memberships will increase in 2016 by 3.8% due to more indirect auto lending and more recognition of the positive credit union value proposition, CUNA economists said. They expect membership growth next year to be slightly lower, at 3.3%, as the auto lending boom begins to slow and indirect borrower memberships decline.

Credit union return on assets are expected to increase to 0.76% in 2016 and 0.65% in 2017. Interest margins will be helped by strong loan growth in 2016 but hurt by the flattening yield curve. Mortgage refinancing and its resulting revenue are expected to decline in 2016.

In the overall economy, robust domestic demand in the household and business sectors will continue to spur growth in 2016 and 2017, CUNA economists said. Pressures of the rising U.S. dollar on manufacturing and exports are easing and will boost gross domestic product growth.  Changing economic conditions will continue to have spillover effects on the U.S. economy. Although the U.S. remains resilient given its limited exposure to weaker aggregate demand from the rest of world, effects of a weak global economy will impact U.S. financial markets.

The U.S. economy expanded a bit faster than previously thought,” Pineda said. “However, economic growth has not been robust and our sense is it GDP growth will continue to be moderate this year and next.”

Headline and core (excluding food and energy prices) inflation will be 2% in 2016, CUNA economists predicted. In 2017, headline inflation will increase to 2.25% equal to core inflation.

CUNA economists predicted that the unemployment rate will finish 2016 at 4.8% and at 4.6% in 2017. Monthly job gains will continue to nudge the unemployment rate lower as quality of jobs created continues to shift from lower-paying entry-level to higher-paying professional and construction jobs.

The Federal Funds interest rate will increase to 0.60% in December and will rise to 1.40% by the end of 2017, CUNA economists said.