Many people and businesses struggled with their finances when the coronavirus upended life as we know it. Credit unions, especially small ones, are no exception due to squeezed net interest margins. The methods that have sustained business for years are no longer working as they used to, and if no changes are made, credit unions will continue to have trouble balancing their books.
While larger credit unions did fairly well in Q3 2020, smaller ones showed troubling signs. According to an analysis of the NCUA’s quarterly data from CU Times, America’s credit unions earned $3.6 billion in the three months ending on Sept. 30, which was down 7% as interest income contracted and loan loss provisions rose. In that same report, they found that losses occurred in 1,006 small credit unions, which is up from 602 credit unions from the year prior. Many credit unions now found themselves labeled with the “undercapitalized” status.
Interest income was not the only income to decline significantly. According to an article from FLEX, noninterest income also slowly declined throughout 2020 as consumers scrimped and saved while facing economic uncertainty. These noninterest income sources include services such as loyalty programs, marketing through ATMs, and overdraft and fraud protection. Consumers have been wary of both cash and ATMs, as both are easy ways for coronavirus to spread, and fewer people shopped for nonessential goods.
So, how do credit unions support themselves and recover their interest income in 2021? One avenue may be a steady increase in auto loans. As the vaccine roll out continues and the economy begins to show signs of recovery, sales of cars are likely to increase. According to a TransUnion study reported by The Financial Brand, the credit bureau predicted that auto loan originations will rise in the first and second quarters of 2021 by 6.8 million and 7.4 million accounts respectively. This volume may be just what we need, plus you should check out our recent blog on auto loan upsells to boost your noninterest income here.
As the coronavirus continues to play a role in our lives into the new year, credit unions must keep a finger on the pulse of members’ changing needs. As we slowly work our way toward a post-COVID normal, Open Lending will be here with our data-driven solutions to help your credit unions and banks safely make higher yielding, nonprime auto loans.