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May 23, 2014

Credit union loan portfolio growth surges to 13-year high

The auto loan portfolios held by credit unions grew at the fastest pace in 13 years durin?g March, according to data provided in a CUNA Mutual Group report.

The last time these portfolios expanded more quickly was March 2001, according to Credit Union Times.

Figures provided by mutual insurance company CUNA Mutual Group showed that this March, auto loans held by credit unions rose at an annualized rate of 12.9 percent. The increase in this type of credit accounted for 45 percent of all loan growth at credit unions since March 2013. These loans also fueled 69 percent of the rise in debt that these smaller financial institutions have experienced this year.

Various factors drove loan portfolio growth
Dave Colby, chief economist for CUNA Mutual Group, identified several reasons for the sharp increase in loan portfolios.

"Stronger employment and income growth, the recovery in new light vehicle sales, fewer financing subsidies from vehicle manufacturers and growing replacement demand due to an aging vehicle fleet, just to name a few," the market expert stated in the report. "[Credit unions] positioned themselves well for this recovery by maintaining consistent underwriting standards, expanded point-of-purchase financing options, and continuously lowered rates on new and used vehicle loans."

Since the start of the recession, the new vehicle interest rate has plunged 52 percent to a national average of 3.04 percent, the media outlet reported. This benchmark borrowing cost has dropped 29 basis points in the last year, and nine BP in 2014.

Opportunities for credit unions
The CUNA Mutual Group report noted that credit unions had a loan-to-share ratio of 69.4 percent in March. While this was 305 BP higher than the same month in 2013, it is still far short of the LTS ratios present before the recession, which tended to be in the low 80s.

As a result, these smaller financial institutions have some additional resources they can use for lending. Credit unions that are effective at originating a specific type of loan might find themselves in need of some balance sheet management. Credit unions can sell loans on their books in order to free up balance sheet and make room for more loans. Some credit unions are selling their nonperforming loans in order to free up staffing resources in order to focus on new origination opportunities.

Organizations that want to sell loan portfolios must ensure that their activities comply with industry best practices at all times. Credit unions that would like guidance on loan sales can turn to Garnet Capital Advisors.