2020 was credit unions’ worst year for loan growth in a decade

New data from CUNA Mutual Group offers the first full picture of how credit unions fared in 2020.

The firm’s Credit Union Trends Report for February compiles information through December of last year, showing how the industry performed amid the pandemic and economic downturn.

Loan balances at credit unions were up just 0.2% in December, below the 0.8% reported in December 2019. Much of that was driven by credit cards (1.1% growth) and fixed-rate mortgages (1% growth), though credit card growth was slower than usual, reflecting continued consumer caution even during the holidays, according to the report.

Overall loan balances for the year were up 5%, down from the 6.5% growth seen the year before and far below the 9% growth rate seen in 2018. Annual loan growth hasn’t been this low since 2012, when loans grew at just 5.2%, and CUNA Mutual forecast 5% growth in 2021, as well, followed by an 8% rate next year.

The bright spot for the year was real estate lending, which rose by 7.9%, a 10 basis-point improvement over 2019 but below the 9.5% pace seen in 2017. Fixed-rate first mortgages were up by a whopping 14.2%, CUNA Mutual reported, the best growth rate seen since the 17.6% reported in 2008 at the height of the housing bubble. The refinance boom resulted in contraction for other mortgage products, CUNA Mutual said, with second mortgage volumes declining by 12.7% and home equity loans falling 4.4%.

First mortgages now make up 33.7% of all credit union loans, the highest total in the industry’s history. Still, there is plenty of room for improvement, the firm said. Just 2.5% of members have a mortgage at their credit union.

Credit unions and other financial institutions saw major deposit increases last year due to reduced consumer spending and government stimulus measures. CUNA Mutual reported the industry closed out the year with a 20.6% increase in deposit balances, more than double the 8.2% lift seen in 2018.

“Expect the savings rate to rise again in the first half of 2021, due to the recent $600 stimulus checks received in January and another $1,400 stimulus payment received sometime in the second quarter,” Steve Rick, CUNA Mutual’s chief economist, wrote in the report. “Consumers typically use 80% of their stimulus payments to either pay down debt or to build up their precautionary savings balances. Therefore, these stimulus checks will continue to significantly alter credit union balances sheets toward greater levels of investments as a percent of assets and lower levels of loans as a percent of assets.”

Membership growth also rose at the slowest pace in six years, CUNA Mutual reported, with the credit unions adding just 3.8 million consumers to their rolls in 2020. Much of that decline was due to pandemic-induced drops in consumer demand and slowdowns in job growth.

Things aren’t expected to improve much this year, the firm added. Membership will likely grow by only about 3% in 2021, below the recent five-year average of 3.7%, with the slowdown in the months ahead due largely to the end of the refi boom and tepid consumer loan growth.

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