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February 2, 2009
Net Interest Margin
Your article assumes that credit unions are earning more on loans than they can on investments. In fact, many credit unions are earing less than they can on investments after the cost of originating and servicing the loans is added to their loan losses. Most credit unions do not perform static pool analysis so they do not even know what they are actually earning. While high yield checking accounts may drive growth, they are often not worth the cost, particularly in this low rate environment..
You make a very good point. At the end of 3Q 2008 (full 4Q numbers have yet to be released), the average yield on loans for all US credit unions was 6.63%, while the average yield on investments was 4.16%. If you factor in the originating and services costs, the actual yield falls. Whether a credit union earns more on loan or investment yields ultimately depends on their individual strategy and distribution channels (e.g. internet vs branch). Products such as high-yield accounts generate excitement and can offset some of their cost by requiring a certain number of debit transactions, the adoption of e-statements, or direct deposit, but are certainly more costly than other options.
Which credit union leads in income per e...
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