Does Higher Loan Volume Equal Higher Loan Growth?

Credit unions are experiencing a significant increase in new loans granted, but how is the higher volume impacting their balance sheets? Recent data reveals an interesting trend.

 
 
Credit unions are experiencing a significant increase in new loans granted, but how is the higher volume impacting their balance sheets? Recent data reveals an interesting trend.

The credit union industry experienced a significant increase in the amount of loans granted for the first nine months of 2001 versus the first nine months of 2000. A large portion of this increase in borrowing can be attributed to the low financing rates on loans that borrowers were able to obtain. However, although loans granted have increased, it appears that more of these loans are refinancing existing loans rather than bringing real loan growth to credit unions. The most recent data shows that despite greater originations, the growth in total loans outstanding has actually slowed from 2000.

According to Callahan & Associates' 3rd Quarter Research & Data Report, Credit unions with assets greater than $100 million granted $101.6 billion in new loans in the first nine months of 2001 versus $83.9 billion dollars over the same period in 2000, representing a 21.1% increase. However, total loans outstanding as of September 30, 2001 have increased only $16.0 billion from year-end 2000 versus an increase of $19.4 billion from December 31, 1999 to September 30, 2000. This equates to a 17.3% decline in the loan growth despite 21.1% growth in originations! It seems that credit unions are working more but realizing less growth for their efforts.

Another way to look at this is to calculate the dollar growth in loans outstanding as a percentage of originations. Viewed this way, for every $1 originated through the first nine months of 2000, credit unions added $0.23 to their balance sheet. As the following chart shows, in 2001 this figure has fallen to less than $0.16 of every $1, a 31.1% decline. While part of the decline in this ratio can be explained by an increase in first mortgage securitizations in 2001, the trend is the same even when securitized loans are added to the outstanding balance.

Although credit unions will likely feel margin pressure as higher paying loans are replaced in their portfolio, they are keeping their focus on providing members with the highest level of service through their active participation in the latest round of refinancing.

 

 

 

Jan. 21, 2002


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