Banks glimpse a brighter year 2021 for credit unions
Banks bet heavily in the third quarter that the worst of the pandemic recession was behind them, lowering their loan loss provisions to a level slightly lower than a year ago when weighted by assets.
The FDIC Quarterly Banking Profile released on Tuesday showed banks provided $ 14.4 billion for loan losses in the three months ending September 30, up 3.5% from the third quarter of 2019 in absolute terms. However, the provision was an annualized average asset of 0.27%, down from 0.30% in the third quarter of 2019.
In addition, the third quarter provision was down sharply from $ 52.7 billion in the first quarter and $ 61.9 billion in the second quarter.
NCUA data for the third quarter is due later this month. While banks and credit unions are different creatures, they are swimming in the same water.
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Diane Ellis, director of the FDIC’s Insurance and Research Division, said the level of provisions for the third quarter “suggests that some banks consider reserves that were previously set aside to be sufficient.”
The second quarter provision was 1.20% annualized of average bank assets, the highest ratio since the second quarter of 2010, a year after the official end of the Great Recession. During the Great Recession, provision ratios ranged from 1.00% in the fourth quarter of 2007, the official start, and 2.08% in the second quarter of 2008.
Provisions for credit union loan losses in the third quarter were $ 2.2 billion, or 0.49% of annualized average assets, according to Callahan & Associates, a Washington-based credit union company, DC. The third quarter provision was still higher than the 2019 third quarter provision by $ 1.6 billion (0.42% of average assets), but lower than the second quarter. Credit union loss provisions rose sharply in the first quarter to $ 2.1 billion (0.53%), then $ 2.7 billion (0.64%) in the second quarter, according to data from the NCUA.
FDIC President Jelena McWilliams said lower banks’ provisions combined with increased non-interest income were the main factors behind an increase in net income for the third quarter, per compared to the first and second trimesters. However, net income of $ 51.2 billion for the three months ending September 30 was still 11% lower than in the third quarter of 2019.
“The decline in provisions reflects the improving economy and a general expectation of the banking sector to stabilize the expected future credit performance of the loan portfolio,” said McWilliams.
“However, economic uncertainty and the low interest rate environment remain headwinds for the banking sector,” she said, citing lower net interest margins, an increase in non-performing loans and a decrease in the volume of loans.
“The low interest rate environment, flat yield curve and lingering economic uncertainties over the trajectory of the COVID-19 pandemic are likely to continue to put downward pressure on revenues and challenge the industry. banking in the short and medium term, ”she said. “Nonetheless, the banking sector remains well capitalized with abundant liquidity and has, to date, resisted the economic effects of the pandemic.”
The FDIC report provided the first chance for credit unions to gain a comprehensive overview of how their auto loan portfolios were compared to banks and other lenders.
The FDIC’s third quarter report showed bank auto loan portfolios stood at $ 489.2 billion on September 30, up 2.4% from a year ago. CUNA Mutual Group’s latest credit union trends report showed credit unions held $ 385 billion in auto loans on September 30, up 1.2%.
Banks have been overtaking credit unions in auto loans for over a year, but the biggest gains have come from captives and other lenders.
Comparing the FDIC and CUNA Mutual figures with the totals reported in the Fed’s G-19 consumer credit report showed that lenders other than banks and credit unions held 348.7 billion dollars in auto loans on September 30, up 8.2% from the previous year.
In terms of market share, the numbers show that other lenders registered their biggest gains since March 31. Credit unions held 31.5% of loans on September 30, down almost 0.6 percentage point from March. The banks’ share fell by 1 point to 40% over six months, while the others increased by 1.6 points to 28.5%.
Auto loans are only a small part of the banks’ loan portfolio and have grown half as fast as the total.
Total loans to banks stood at $ 10.9 trillion on September 30, up 4.9% from the previous year, while loans from credit unions rose 6.6% to 1.19 trillion dollars. Other comparisons included:
- Commercial and industrial loans from banks increased 14.5% to $ 2.5 trillion. Loans to member businesses of credit unions increased 14.9% to $ 90.2 billion.
- Residential mortgages at banks rose 2.7% to $ 2.2 trillion, while at credit unions total home loans (including business loans backed by real estate) increased. increased 9.3% to $ 602.3 billion. Both figures can be strongly affected by sales.
- Credit cards at banks fell 10.8% to $ 796.5 billion. In credit unions, they fell 5.7% to $ 61 billion.
- Other personal loans from banks rose 3.8% to $ 424.2 billion. In credit unions, unsecured consumer term loans increased 14.3% to $ 52.8 billion.