Credit unions should begin to prepare for potential interest rate increases, according to the NCUA's Chief Economist John Worth in the agency's latest Economic Update video released on Wednesday.
“Credit union performance was solid in Q2 partly as a result of the strengthening economy,” Worth said. “However, the strengthening economy also brings with it the potential for major changes in the interest rate environment.”
The median growth rate for loans nationally in the second quarter of 2014 was 3.2 %, representing an increase of 1% in the year ending in the second quarter of 2013, according to the economic update.
The median loan-to-share ratio also increased nationally to 58% in the second quarter of this year from 56% at the end of the second quarter in 2013.
Worth said policymakers have predicted that short-term interest rates will rise next year if the economy continues to improve as expected.
“Here at NCUA, our chief concern is that credit unions be aware and prepared for the possibility of rising short-term rates,” he noted. “Credit unions should have a firm idea of how their income statements and balance sheets are affected by a rapid rise in short-term rates and they should have a plan for dealing with the potential consequences.”
The NCUA encouraged credit unions to utilize the agency's interest rate risk resource Web page.
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