To boost lending during a time of slow loan growth, many credit unions are turning to other credit unions to enhance their own portfolios. Credit unions hold $10.4 billion in outstanding participation loans nationally. Approximately 16.5% of credit unions have at least $1 outstanding in participation loans, but only 205 (or 2.7%) hold more than $10 million.
Through loan participation, credit unions with a strong lending portfolio can assist credit unions that experience difficulties putting loans on their books. Loan participation also allows credit unions that specialize in a certain type of loan to share the loan and disburse the risk. It’s a true cooperative strategy.
Source: Peer-to-Peer Software
The composition of purchased participation loans held by credit unions has shifted over the past year. As of September 30, 2010 nearly 40% of participation loans were business loans held by non-members of the holding credit union. This category grew by $582 million over the past 12 months, a growth rate of 16.5%. Loan pools also grew its share of the portfolio since September 2009, growing 12.5% over the past month to reach $735.8 million. Of the remaining categories, only two shrank in outstanding balances. Consumer loans declined 12.4% to $1.1 billion as of September 30, 2010. Commercial construction & development, the smallest category of participation loans held, declined 19.4% to just $280.7 million. Real estate balances grew but not as quickly as other categories, resulting in a loss of share in the portfolio.