3-Year CU Horizon: Steady Loan Growth, Low 'NIM,' More Expense Management

Steve Rick, chief economist for CUNA Mutual Group
Steve Rick, chief economist for CUNA Mutual Group

From 2021 to 2023, credit unions will need steady annual loan growth — and are forecasted to find it — to equalize their balance sheets amid a historically low-interest rate environment. The average net interest margin (net profit from loans) will fall to a record low. And cost containment, as well as operating expense management, will be key to bolstering the industry’s financials.

That was the message from keynote speaker Steve Rick, chief economist for CUNA Mutual Group. Rick spoke during the fourth day of Virtual REACH 2020 (Nov. 4), giving his projection of the U.S. economy in a post-election world after November passes.

“The good news is, credit unions’ capital levels are high,” Rick said. “It’s time to use some of that capital to help members during their financial distress right now.”

Rick said U.S. credit unions’ average net interest margin (NIM) will fall to a record low in 2021 — about 2.78 percent (from an already record low 2.9 percent in 2020). This interest-income measurement has been dropping for the past 20 years as short and long-term interest rates have only come down over that time.

Meanwhile, loan growth will register 6 percent in 2020 and 2021, and probably 7 percent in 2022 and 8 percent in 2023 (coming off a stronger 10 – 11 percent annual growth from 2014 to 2017, but much higher than the -0.4 to 2.3 percent growth range experienced from 2009 – 2011 after the Great Recession). The main driver in loan originations will still be refinance mortgages and purchase mortgages in late 2020 and early 2021.

Deposit growth will be 19 percent in 2020, 8 percent in 2021, 6.5 percent in 2022, and 5 percent in 2023 as more spending happens over the long term with the job market forecasted to steadily recover (growth ranged in a volatile range between 3.6 – 10.6 percent from 2009 – 2019).

Rick’s other projections include the following:

  • From late 2020 to early 2021, the U.S. average credit union loan delinquency rate will hit 1.1 percent and the loan charge-off rate will rise to 1 percent as loan forbearances and/or extensions end. Although this rise hasn’t been experienced since 2009 – 2010, its run-off rate will be significantly and consistently lower over 2021, 2022 and 2023 versus in the years after the Great Recession of 2007 - 2009.
  • Depending on who wins the U.S. presidential election and congressional seats (House and Senate), from 2020 to 2024 U.S. gross domestic product (GDP) will range from 3.2 – 4.2 percent annually; job creation between 9.8 – 16.5 million annually; and the unemployment rate steadily dropping to a range of 5.4 to 6.5 percent.
  • Although 22 million jobs were lost during the beginning of the COVID-19 pandemic earlier this year, nearly 12 million have come back online as businesses and workers wait for the remaining 10 million to come back as well. The national unemployment rate (at 7.9 percent today compared to 3.5 percent in April 2020) probably won’t fall to where economists would like to see it (4.5 percent) until sometime in 2022 or 2023.

You can watch Steve Rick’s session and also catch the entire conference in real-time or on-demand! Click here to experience this exclusive virtual conference on Oct. 26, 28 and 29, and Nov. 4 and 5. REACH 2020 is one of the credit union industry’s premier annual events, drawing leaders and system partners from across California, Nevada and the United States.

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