CEOs expect reversal in consumers' savings habits

PLANO, Texas (4/20/09)--Credit union CEOs are expecting their members to respond to economic uncertainties with a sharp reversal in savings habits, according to results of the April 2009 Credit Union CEO Confidence Survey, conducted by Southwest Corporate FCU, Plano, Texas.

Share deposit growth expectations for the next six months climbed 15.38 points from the last report, compared with a drop half that size for the previous three quarters combined (LoneStar Leaguer April 17).

The share growth barometer offered some hope in an otherwise unenthusiastic economic outlook, said the corporate. Projections for loan demand in six months declined to -3.75 from zero in November, and the overall CEO Confidence Index landed at its lowest level in five years, falling to 7.9 in the April report from 10.5 in November.

"Had we not lowered savings rates, share growth was tracking at a 60% increase this year," said Steve Rasmussen, president of FAA CU, Oklahoma City, Okla. "I expect loan demand to remain steady throughout the year, and possibly increase slightly as a result of indirect lending. We have, however, projected higher delinquencies and charge-offs."

His region of the country is fortunate, compared to some, he acknowledged that members are feeling the pinch. "The general atmosphere is not overly optimistic for 2009. Most members are just looking to get through this year," he added.

More so than in the past, CEOs registered weakening certainty in their own institutions' financial condition in the April report, lowering marks for their current position by 13 points and for their projected position six months from now by 10 points.

CEOs also recorded a further decline in confidence for their members' current financial condition, with the index falling 3.33 points to -5.37 this quarter. Members' financial conditions in six months also dipped further into the negative range, to -10.59 in April from -10.46 in November.

"Given the current state of affairs, these results are not surprising," said Brian Turner, Southwest Corporate's director of advisory services. "Lower market rates and higher loan delinquencies are contributing to lower asset yields and tighter net interest margins. Add to that recent and pending write-downs associated with the National Credit Union Share Insurance Fund, and you get less-than-stellar optimism.

"Share growth is positive, but could be transitional," Turner added. "Credit unions typically experience the highest concentration of shares during the first quarter, and loans generally half that growth over the next three quarters. Many economists anticipate weak loan demand for 2009, however, so the short-term financial result for some natural person credit unions may be unprecedented.

"The good news is that early signs indicate the downward trend in the economy is beginning to slow," Turner continued. "Many market economists project higher interest rates by the end of this year, which will continue--and possibly accelerate--over the next few years.

"Higher interest rates underpin an expectation that the economy will rebound, stronger loan demand will return, and net interest margins will begin to widen. Unfortunately, most credit unions likely will have to wait until 2010 to fully experience that result," he concluded.

courtesy of cuna.org