Schenk: expect above-average loan growth

CUNA Chief Economist Mike Schenk is “rather optimistic” about the lending outlook through the second half of 2022.

“Due to a combination of pent-up demand and a fairly strong labor market, we believe loan growth will continue to grow at a slightly above long-term average rate,” he said.

CUNA’s latest quarterly forecast forecasts loan growth of 8% in 2022 and 7% in 2023, compared to 7.5% in 2021.

Part of Schenk’s optimism is due to the expectation that the unemployment rate, currently 3.6%, will remain low through 2023. Wages and salaries are also rising relatively rapidly.

While wages don’t keep up with inflation, Schenk says higher wages and strong job prospects create consumer optimism, which usually leads to loans.

“The good news is not only that the relatively healthy level of growth will continue, but that we expect these increases in loan portfolios to be broader going forward,” he said.

Credit union loan growth will shift from first mortgages, business loans and used auto loans to home loans and new auto loans, as well as unsecured credit card and personal loans, Schenk said.

While supply chain issues have led to substantial price increases, CUNA forecasts suggest continued demand for automobiles and homes. New vehicle loans declined in 2021, but Schenk expects a 5% to 5.5% increase in 2022.

Conversely, first mortgages grew by around 9.5% in 2021. But Schenk expects far fewer mortgage refinances in 2022, with first mortgages rising by around 5%.

“There was a huge amount of mortgage refinancing activity that propelled loan growth in 2021,” Schenk says. “It’s usually a double-edged sword because, on the one hand, it reflects market demand.

“On the other hand, unsecured loans that are growing at a high rate tend to be correlated with situations where vulnerable people are getting closer to potential trouble,” he continues. “We are monitoring this closely and we are not seeing large increases in delinquencies or net charges.”

The persistence of high inflation could, however, affect the credit outlook. In addition, inflation hits people on fixed incomes particularly hard, Schenk says.

Still, he thinks the US economy will likely avoid a recession.

“We’re probably a hair below 50% in terms of the likelihood of a recession,” Schenk says. “We believe the economy will continue to grow, albeit at significantly slower rates than we expected at the start of the year, largely because we did not anticipate the war in Ukraine. The longer this lasts, the more our level of concern will increase.

“Our baseline indicates that the economy will continue to grow and labor markets will continue to show strong performance overall. This should be particularly helpful for credit union operations in general and cooperative lending credit in particular.

This article is part of Loan 2022, CUNA News’ special focus on lending innovations, sponsored by Cornerstone Advisors. Follow the conversation on Twitter via #Ready2022.

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