Credit unions and banks are likely to loosen credit standards in 2018 as job growth continues and wages rise, but rising interest rates will slow the growth rate for loans, according to a CUNA Mutual Group report released Thursday.
The Credit Union Trends Report showed the total loan portfolio was $953.4 billion in August, 10.8% higher than a year earlier. Assets grew 6.2% to $1.4 trillion as membership grew 4.3% to 112.7 million.
CUNA's "Economic Update" report for October forecasts 10.5% loan growth this year, and 9.5% in 2018. It was 10.6% last year. Return on assets is expected to be 0.75% this year and 0.85% in 2018, compared with 0.76% last year.
Car and business loans continued to become a larger part of the portfolio in August, while credit cards and real estate waned. CUNA Mutual also reported:
- New car loans grew 16% to $130.2 billion.
- Used car loans grew 12.3% to $201.8 billion.
- Credit cards grew 7.9% to $55.1 billion.
- First-lien mortgages grew 10.2% to $382.7 billion.
- Second-lien mortgages grew 6.6% to $83.8 billion.
- Member business loans grew 14.3% to $74.4 billion.
- Savings grew 6.9% to $1.2 trillion.
- Capital grew 6.6% to $147.9 billion.
- The number of credit unions fell 6.4% to 5,708.
The increase in membership from July to August was 0.48%, up from a 0.45% increase in August 2016 and the highest month-to-month growth rate since May 2003.
Credit union loan delinquency rates fell to 0.75% in August, down from 0.77% one year earlier due to a stronger economy and double-digit loan growth.
"The economic outlook for U.S. consumers is strong," CUNA Mutual Group economist Steven Rick said. "Consumers' balance sheets are the healthiest in 16 years due to consumers' focus on paying off debt during the recovery phase of the last eight years."
Debt payments are historically low relative to disposable income, leaving few consumers with the need to file bankruptcy protection from their creditors.
Bankruptcy filings are at their lowest levels since the 1980s. Credit unions have 1.7 bankruptcies for every 1,000 members this year, down from 3.7 in 2010. Likewise, the loan charge-off rate is 0.56% this year, down from 1.14% in 2010. "Both the bankruptcy and charge-off ratios are about as low as they can go," Rick said.
CUNA Mutual Group said the contract interest rate on a 30-year, fixed-rate conventional home mortgage is likely to reach 4.65% by the end of 2018. It was 3.9% in August, down from nearly 4% in July, but up from the 3.4% in August 2016.
"Expect mortgage originations to drop 4% to 5% in 2018 as rising interest rates restrain home demand," Rick said.
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