CUNA Raises Forecast for Credit Unions in 2021-22

CUNA’s latest forecast raises its outlook for economic growth and credit union earnings through the end of 2022.

Credit unions are now expected to generate net income that will be 0.85% of average assets in both 2021 and 2022. That’s up from its April forecast of 0.60% and its February forecast of 0.50% for both years.

The forecast dated June 14, and announced Monday by its author, CUNA senior economist Jordan Van Rijn, expects gross domestic product to grow 6.5% in 2021, up from its April forecast of 6% growth. It forecasts economic growth of 4.5% next year, up from its April forecast of 4%.

Last year’s ROA was 0.71%, down from 0.94% in 2019. It was 1.04% in the first quarter.

“First-quarter call report data shows that credit unions have continued to perform well throughout the pandemic, with historically low delinquency and charge-off rates, solid membership growth, soaring deposits, and earnings over 1.0%,” Van Rijn wrote.

The net worth ratio for credit unions is expected to be 9.6% at the end of this year, up from April’s forecast of 9.5%, and 9.9% at the end of 2022, up 20 basis points.

Its forecasts for 2021 remain 5% for loan growth and 15% for savings growth. The forecast balances first-quarter adjustments for savings that were stronger than expected and lending that was slightly weaker than expected with tweaks in subsequent quarters.

The loan-to-share ratio is expected to be 67.1% at year’s end, up 30 bps from April’s forecast of 66.8%.

Savings were ginned up in the first quarter by federal stimulus checks and in the second quarter by tax refunds.

“Deposits of child tax credits are scheduled to begin in July which will create another inflow of savings at credit unions,” Van Rijn wrote. “On the other hand, the opening economy and pent-up demand mean that people are relatively more likely to spend their stimulus funds and even draw down on savings compared with last year (such as by taking long delayed vacations).”

Despite weaker-than-expected job growth and higher-than-expected inflation, Van Rijn said the economy is benefiting from rising vaccination rates and consumer confidence.

“We assume that the virus will continue to wane, which will lead to further reopening of the economy, particularly in the fall when schools resume in-person instruction. Moreover, we expect passage of an infrastructure bill sometime in the second half of 2021, in the range of $1 trillion to $1.5 trillion,” he wrote.

“As the economy continues to rebound and inflation expectations rise, credit unions should anticipate rising long-term interest rates. CUNA economists expect the 10-year Treasury yield to reach 2.0% by year end 2021 and 2.5% by the end of 2022.”