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The State of Lending in the Credit Union Space: Loan Demand & Liquidity Concerns

Credit Unions play a significant role in our financial landscape, offering a wide range of financial services to their members. One of the main activities of credit unions is lending to individuals and businesses to meet their various financial needs.

Over the past decade, many individuals and businesses have turned to credit unions for loans due to their personalized service and community-focused approach. Credit unions have a unique advantage in understanding the needs of their members, leading to tailored loan products and flexible terms. Loan demand continues to be robust for credit unions despite the surge in interest rates over the past year. There is heavy demand for personal loans, mortgages, auto loans, commercial real estate loans and small business loans.

As loan demand continues to thrive, liquidity continues to be a real concern for the credit union space. Maintaining sufficient liquidity is essential for credit unions to meet the funding requirements of their loan portfolio’s while protecting the financial stability of the institution.

After conversations with credit union clients over the past few months, many are seeing high loan demand, from both individuals and business members. Chief Lending Officer’s across the country are refraining from buying loan participations from outside originators and other credit unions to keep their powder dry for customers within their footprint. The concern is not loan growth, it’s liquidity. Over the past several years, credit unions began funding long-term loan obligations with short-term and overnight deposits. This is not a sustainable way to manage an institution.

Many credit unions have implemented precise strategies to monitor and analyze their liquidity positions on a consistent basis. They have developed robust liquidity risk management policies that outline limits and contingency plans for different liquidity scenarios. They are diversifying their funding sources to include wholesale funding markets, establishing lines of credit with other financial institutions, and utilizing funding options by central banks and other liquidity facilities.

Written By: Bill King


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