Credit Unions Increase Borrowed Funds to Meet Loan Demand

As loan growth continues to outpace share growth, borrowings from the Federal Home Loan Bank or corporate credit unions are playing a growing role in funding loan production and asset liability management. As of June 30, 2004, borrowings reached $13.5 billion and were up 47 percent from last year.


Credit unions’ response to the recent surge in lending versus the slowing share growth is to increase their borrowings. Credit union borrowings rose 47 percent since June 2003 and have doubled in the past two years.

Whether it’s funding loan growth or asset liability management, borrowings should continue to rise as slowing share growth persists. This change should foster more effective balance sheet strategies.

This rapid rise in borrowing funds caused an increase in mortgages put on the books over the past three years. In general, mortgages, more specifically 15 to 30-year mortgages, extend the asset duration on a credit union’s balance sheet.

Selling long-term assets or “borrowing” from members through share certificates are ways to manage a credit union’s asset and liability durations, according to Henry Huang, director of asset liability management at Pentagon Federal Credit Union.

“Borrowing from a Federal Home Loan Bank or corporate credit unions is a cost effective way to lengthen the liability duration while lowering the equity duration,” said Huang.

Of the top 15 credit unions in borrowings outstanding (see chart), five have borrowings to share ratio over 30 percent. This ratio suggests credit unions’ reliance on borrowings to fund earning asset production compared to shares.




Sept. 20, 2004



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