Credit Unions Brace for Loan Defaults, Delinquencies, Bankruptcies Due to COVID-19

Last fall, the $7.9 billion Patelco Credit Union conducted a roundtable disaster planning test to prepare for a pandemic. Susan Gruber, CFO for the Dublin, Calif.-based credit union, was quick to point out that it was purely a coincidence.

“We debated whether or not to do a pandemic, because why would we ever do a pandemic? Normally we do an earthquake or something of that nature, which just seemed at the time more realistic,” Gruber said. “But we were able to take some learnings from doing a pandemic roundtable, and I think that helped us.”

Gruber and other credit union executives shared their insights on how they are preparing for the inevitable wave of loan defaults, delinquencies and bankruptcies that are bound to come later this year and next year because of the COVID-19 health and economic crisis.

But no one really knows how big that wave will be, making preparation plans for potential risks even more challenging.

Although the credit union’s mortgage and refinancing business is booming and auto lending activity has bounced back after a temporary lull, no one knows how long it will last because the coronavirus is creating so much economic uncertainty

“We are seeing large companies that cater more to white-collar workers – Uber, Lyft and other ones that just announced layoffs, which we believe are going to hit a section of the population that didn’t really get hit the first time,” Gruber said. “We’re thinking that perhaps in this second round we may see layoffs of more white-collar positions, which we’re seeing as our biggest risk because they are homeowners and they are more of our borrowers.”

What’s more, to mitigate loan losses it may be a good time for credit unions to explore expense reductions such as renegotiating vendor contracts that can save millions of dollars.

Details about these credit union initiatives will be published in the Aug. 12 print edition of CU Times.