When the economy expands or contracts, loan growth and share growth have historically had an inverse relationship. In times of economic prosperity, confident consumers take out more and larger loans. During periods of economic contraction, cautious consumers seek safe havens for their savings.
In simple terms, an institution can use the loan-to-share ratio to assess how effectively it is deploying its balance sheet. A rising ratio signals that loan growth is outpacing deposit growth. As loan-to-share ratios approach 100%, institutions will commonly seek additional sources of liquidity (borrowings), sell loans off their balance, or tighten lending criteria to slow loan growth.
Over the past five years, the average credit union loan-to-share ratio has increased 15.5 percentage points. In the second quarter of 2018 alone, it increased 2.3 percentage points to 82.9%. This is only 86 basis points below the 83.7% record high reached in the third quarter of 2008.