Credit Unions Boost Lending $89.5 BLN, While Loan Quality Improves

Just like with most financial institutions, credit unions know that lending is one of the driving forces behind growth.

The more loans they give out, the more money they can make — which can then be turned around into more loans and so on.

Of course, poor lending practices and a lack of proper risk management can result in losses and huge headaches for credit unions. They might even drive them into the ground.

But from the looks of the first quarter 2017 data, it seems that credit unions are doing just fine in managing loan growth and collecting on-time payments from borrowers.

Overall credit union lending grew a substantial 11.1% year-over-year in Q1 2017, from $805.9 billion a year ago to $895.4 billion. Even better, this continued increase in lending didn’t degrade loan quality.

The non-performing loans to total loans percentage tells us what portion of loans haven’t been paid for at least 90 days.

They’re non-performing because they no longer make money for the credit union.

You can see in this chart that non-performers dropped to 0.63% of overall loans, the lowest percentage since 2012

So what does this mean for the industry going forward?

An increase in lending and a drop in non-performing loans indicates that the industry is avoiding a situation where risky loans outweigh higher-quality loans.

In fact, based on these numbers, credit unions could lend to less-qualified borrowers and increase the volume of lending without having much of a negative effect on performance.

The overall lending environment could be improving because borrowers have higher credit scores.

Or it could be simply because the economy is doing well enough where the majority of borrowers are able to make on-time payments.

Although the lending data show positive trends, our overall credit union ratings didn’t change much over the last year.

The data shows that 32.1% of credit unions in Q1 2017 were rated “A” and “B”, nearly identical to a year ago. On the vulnerable side, 27.1% of credit unions had “D” and “E” ratings — just under a one percent improvement from a year ago.

One important note: Although the overall percentage of credit unions with a given rating remained stable, there were still plenty of upgrades and downgrades.

So be sure to check out YOUR credit union to see if anything has changed. And if you’d like, add it to your Watchlist so we can email you every time a rating change takes place.

Think Safety,

Remi Lukosiunas

Money and Banking Edition, By Remi Lukosiunas, Financial Analyst Remi Lukosiunas, a Financial Analyst, joined Weiss Ratings in 2014 with a financial services background in internal audit and the credit union industry. Remi conducts banking, credit union, insurance and investment research. He has also written extensively on stocks and investing using ratings as a guide. Remi is a graduate of Florida State University with a degree in multinational business.