CUNA economists continued to gain confidence in the growth of the economy this year, but said they still expected credit unions to perform worse than they did at the time of the pandemic crisis in 2020.
The latest forecast from CUNA and CUNA Mutual Group, both of Madison, Wisconsin, showed that credit unions were generating first quarter net income at an annualized rate of 0.60% of average assets. This compares to an actual ROA of 1.48% for the top 10 credit unions based on asset size.
Still, CUNA’s estimate of ROA for the 12 months ending December 31 was higher than that released in February. Its April forecast called for an ROA of 0.60% for 2021 and 2022, up from February’s estimate of 0.50% for both years.
The most significant change in its new forecast was to raise its estimate of economic growth to 6% for 2021, from its February estimate of 4.5%. The gain will follow last year’s 3.5% drop – the worst annual drop in gross domestic product since 1946.
“The recently adopted $ 1.9 trillion stimulus package, the accelerating pace of vaccination and the rebound in the labor market make many economists optimistic about the prospects for a strong economic recovery in 2021,” he said. Jordan van Rijn, CUNA’s senior economist, writes in the forecast report dated April 21.
“The additional stimulus and improvement in the labor market will increase deposits and stimulate demand for loans from credit unions, especially auto loans. But rising interest rates will present a headwind, especially in the mortgage market, ”he wrote.
Van Rijn said he expects profits to suffer as credit unions make fewer gains on mortgage sales and interest margins remain tight. In the meantime, savings and asset growth will remain strong, which will lower capital ratios.
However, he wrote, “improving the economy and additional stimulus will help maintain relatively healthy asset quality.”
The April forecast showed the 60-day and over delay rate to be 0.65% for 2021, down from the February forecast of 0.80%. Likewise, the net deduction rate is expected to be 0.45% this year, down from the February forecast of 0.60%.
“Despite the pandemic and the worst recession in decades, the quality of the credit union portfolio has remained incredibly healthy,” van Rijn wrote. “This is a testament to how credit unions have worked with their members to delay and change payments, and members have also benefited from multiple rounds of fiscal stimulus and increased unemployment benefits.”
CUNA’s forecast of a first quarter ROA of 0.60% would mean a 0.53% increase in the first quarter of 2020, which was reduced by heavy loan loss provisions built after the COVID pandemic declaration -19. However, net income improved to 0.83% in the fourth quarter.
For the top 10 credit unions, the first quarter ROA of 1.48% fell from 0.51% in the first quarter of 2020 almost entirely due to reduced provisions. However, even without provisions, the ROA would have made a small gain: despite a drop in income, including a sharp drop in net interest income, operating expenses fell by an even larger amount.