Credit Union Borrowings Decline As Share Growth Remains High

Credit unions increased short-term borrowings at the beginning of 2009 but reduced their liabilities amid a flood of deposits.


Credit unions are growing loan portfolios, but share growth is outpacing loan growth. As a result, credit unions’ loan-to-share ratio has declined. As of December, the loan-to-share ratio declined more than seven full percentage points from 83.1% to 76.0%.

Through the past several quarters interest rates have been nearly 0%. For some credit unions, this low rate environment makes borrowing an attractive solution for increasing liquidity early in the year, as servicing deposits can be more expensive than paying interest in a zero rate environment. As a result, total borrowings increased 9.4% from $37.4 billion at the end of 2008 to $41.0 billion at the end of the first quarter in 2009. Since then, however, the consumer savings rate has increased, causing share balances to grow. As a result, credit unions have reduced their total borrowings to $37.7 billion, only 0.6% above the previous year end total.

Number Of Credit Unions Borrowing Remains Largely Unchanged

Although credit union borrowings totals have increased, the number of credit unions holding outstanding borrowings has actually decreased.  At the end of 2008 there were 1,171 credit unions with outstanding borrowings. During the course of the year that number fell 3.2% to 1,134 at year-end 2009. The average loan-to-share ratio of credit unions with outstanding borrowings was 84.4%, well above the industry average of 76.0%.

The increase in overall borrowing coupled with the decrease in the number of credit unions engaging in borrowing has impacted average borrowing balances. Average borrowing balances increased 3.9% during the course of 2009, rising from $32.0 million per credit union at the end of 2008 to $33.2 million at year-end 2009.

Callahan & Associates' Borrowing MaturitiesClick to view larger.

Largest Growth In Short Term Borrowings Maturities

The largest gain in balances occurred in borrowings with maturities less than one year, up 19.7% during the year to total $16.3 billion. This increase helped short-term borrowing make the largest leap in percentage of portfolio, comprising 43% at December, up from 36% the year before. Balances of longer term maturity declined approximately 10% during the year leaving their percentage of the composition at 57%, down from the 64% they represented the year before.

Member demand for loans remains low and share growth remains high, causing concern about credit unions’ capacity to lend. Although credit unions still have ample liquidity, a long-term borrowing strategy is an important factor for credit unions to consider as they respond to changing member needs.