The industry’s return-on-assets, the key profitability indicator, plunged to just 0.35% for the fourth quarter, from 0.75% at the end of the third quarter. The 0.35% mark was the lowest since the 1980's.
The main cause of the plunge in credit union profits was a massive shift of funds into provisions for loan losses as loan delinquencies and charge-offs are starting to tick up, according to Bill Hampel, chief economist for CUNA. Credit unions set aside $1.1 billion in new loan loss reserves during the period, an increase of more than 50%.
“That’s a significant increase in provision for loan losses in the fourth quarter. That’s the whole story,” the CUNA economist told The Credit Union Journal yesterday. “It means that credit unions are projecting a big increase in charge-offs.”
Delinquencies rose significantly for loan participations and indirect loans, while member bankruptcies soared by 35% for the full year, all portending more problems in the near future. (Credit Union Journal)