By Ray Birch
LOMBARD, Ill.—Credit unions’ attention may be on liquidity ratios as a new influx of stimulus checks are deposited, but what executives really need to be thinking about beyond the COVID crisis is leveraging the growth opportunities about to be presented by a resurgent economy, according to one expert.
“With all this pent-up demand, consumer spending is really going grow here in 2021, as we begin to get a higher percentage of people vaccinated and we move towards herd immunity,” said Bill Handel, SVP of research at Raddon, a Fiserv company. “I know herd immunity is still a dirty word, but it is right around the corner. I think what's really critical for credit unions to think about is how they're going to get their growth engines moving again.”
In line with Handel’s outlook, a new analysis released by the Organization for Economic Cooperation and Development forecasts the American economy will accelerate nearly twice as fast as expected this year as result of the just-passed $1.9-trillion stimulus plan and the rapid vaccine rollout. In its half-year outlook, the organization projected the United States would expand 6.5% this year, up sharply from 3.2% forecast in December. The surge in the world’s largest economy will generate enough momentum to help lift global output 5.6%, from a 3.4% contraction in 2020, the forecast predicts.
Pressure on Pricing
Handel said credit unions must ensure they are pricing correctly to take advantage of the growth that’s ahead in 2021.
“They have to think about pricing adequately on the deposit side, but then really think about how they will turn on the lending engine when consumers open up the doors and spend,” said Handel, who recognizes there will be a limited, short-term strain on credit union capital ratios from all the stimulus deposits. “There's more of an opportunity here than a threat. On a short-term perspective, there might be a little bit of pressure on us from a growth perspective.”
Handel emphasized as the new stimulus payments go to approximately 90% of Americans, credit unions should be feeling good, not worried.
“There are a lot more reasons to be optimistic than pessimistic,” said Handel. “We are going to see a big lift in the economy in the second half of the year. We believe those organizations that are prepared for this and have things in place to take advantage of it are going to be the ones who really benefit.”
The Positive Signs
Among the indicators of an improved economy in Q3 and Q4, according to Handel, are improving job numbers and increased number of new businesses.
Bill Handel
“Yes, we lost many small businesses during the pandemic,” said Handel, before pointing to data that show between January and December of last year there was a 40% gain in new business startups. “Small business owners and managers tend to be serial entrepreneurs. Even if they had to close up, they're going to start again. I think that's what we're going to see in the second half.”
All of the roses don’t mean there won’t be a few thorns ahead, Handel added.
“The stimulus is going to put some pressure on the industry in a couple of different ways,” he said. “One, is credit unions may get deposit growth to such an extent that it does put pressure on capital. And the other issue is credit unions may not have any way to deploy those dollars effectively.”
A Brief Challenge
But that problem will be brief, said Handel.
“But think about where we are now. Think back to where we were in late 2019 when we had liquidity issues. That situation has been totally flipped on its head,” said Handel.
Handel urged credit unions to pay attention to the signs around them indicating the end of the pandemic is clearly in sight, and to the fact debt levels are low and savings balances are high.
“We’ve been in this pandemic for more than a year,” said Handel. “We are now seeing reports that say if you've been vaccinated it's OK to be together with other vaccinated people without masks. I bring this up because I think we are moving past this pandemic at a much faster pace than people recognize. I think we're going to find, when things open up, the economy potentially could have an extraordinary second half in terms of loan demand, and offer some great opportunities. The thing I worry about is the industry may be thinking too much about COVID and not enough about the future and how they will respond as things get better.”
Mike Schenk, CUNA
Spending Money
Also, the influx of deposits from the latest round of stimulus may not be as bad as some analysts have predicted and many within the movement fear, according to analysis from CUNA’s Mike Schenk, who said consumers spent a lot of their second round of stimulus funds.
In January of 2021, even in the wake of a second stimulus payout, deposit inflows were actually below those of one year earlier and the traditional pace of January, according to Schenk, VP of research and policy analysis and CUNA’s chief economist.
“The data we have for January is interesting because it doesn’t really reflect a huge increase in savings balances during the month,” said Schenk, pointing to the .9% increase in savings balances. “From a historical context that’s not really substantial. In January of 2020, for example, prior to any stimulus checks, January savings growth was 1.2%.
“I think it’s good news in the grand scheme of things,” Schenk continued. “It might be an indication credit union members took some of that stimulus money and did what we want them to do: spend it. I will be interested to see what happens in February and with the additional pandemic relief.”