Deposit And Liquidity Concerns
November 28, 2018
We have been talking about expectations of deposit and liquidity pressures for the last several years. Now, for many places those concerns are becoming reality. Loan growth for the industry has averaged about 10.6% for the last 4 years, while deposit growth has averaged about 6.1% for the same time frame. At the end of 3Q 2018, 25% of credit unions over $1 billion in assets now had loan-to-share ratios over 100%, and in recent quarters many institutions have seen pressure on non-maturity deposits in particular. (Source: Callahan P2P, 3Q 2018)
A couple of weeks ago, we asked readers how concerned they were about money markets walking out the door. The consolidated results suggest that credit unions are in fact quite concerned about this trend, with an average score of 7 on a scale of 1 to 10.
Deposit and liability planning are something credit union decision makers should continue to discuss and develop strategies to address, from both a budgeting and ALM perspective. Some credit unions are looking to attract funds through CD promos. While this may bring in new funds, it can also come at a high cost. We recently posted a napkin math video that is great for illustrating this concept. We also invite you to read our other blogs on the subjects of liquidity, as well as forecasting cost of funds.
Finally, as you evaluate your credit union’s liquidity needs and the potential for increased cost of funding, it can also be beneficial to take a second look at the loan strategy with respect to pricing and volume to ensure that your credit union’s loan strategy is designed for this environment. In some cases, the liquidity pressure is coming from growth in loans that may not be profitable and/or have an unattractive risk/return profile. This is a good time to be even more diligent on where loan growth is coming from going forward.
Feel free to reach out with any other comments or questions.