Credit Unions Face Historic Pressure to Make Loans

Source: American Banker (subscription may be required)

Two years since the start of the pandemic, the coronavirus's impact is still taking its toll on credit unions' balance sheets.

A combination of members socking away savings and being hesitant to borrow because of the economic uncertainty surrounding the pandemic led to the lowest yield-on-asset ratio in credit union history, according to CUNA Mutual Group, an insurance and financial services company that monitors the credit union industry.

Credit unions reported a 2.97% yield-on-assets ratio in the fourth quarter of last year, down from 3.27% in the fourth quarter of 2020. The metric measures how much income a company’s assets are bringing in.

CUNA Mutual reported that credit unions’ loan-to-assets ratio fell to 61.3% in January 2021, from 63.1% in the previous January. Combined with yield on assets, the ratios measure a credit union's financial health.

The cumulative effect could be net interest margins becoming further squeezed, ultimately lowering net income.

“Everyone is looking for loan growth to offset the deposit surge from the pandemic,” said Vincent Hui, managing director at Cornerstone Advisors. “The impact will vary based on the credit union and how strong their lending capability is."

The market is not very conducive to auto or mortgage lending right now, and business lending is tough as credit unions are competing against banks, according to Hui. The impact of lower yields will be very credit union-specific. “It depends on how strong their lending engine is and how much share they can take,” he said.