The Wall Street Journal recently reported that U.S. credit unions are stepping up lending aggressively, posting loan growth of 9.8% in the second quarter of 2014, according to data released by the National Credit Union Administration (NCUA). That easily surpassed the 4.9% increase in loans reported last week by the Federal Deposit Insurance Corporation (FDIC). Loan growth, the highest on a year-over-year basis since the first quarter of 2006, comes after credit-union membership topped 100 million in June, according to NCUA. In the second quarter, net commercial loans increased 12% to $48 billion, while other loan categories also posted double-digit gains.
The growth has traditional commercial bankers on the defensive. “Credit unions along with overregulation are going to slowly euthanize community banks in this country,” said David Locke, Chief Executive of McFarland State Bank, a Wisconsin bank that has about $450 million in assets.
“Credit unions have an unfair advantage over traditional community banks of the same asset size because credit unions are not taxed,” said Michael D. Sneden, Executive Vice President of ValueXpress. “Also, since they generally operated on a ‘not for profit’ basis, they do not have shareholders expecting a return on investment, which provides an even higher competitive advantage over community banks.”
As a result, commercial loan and other products tend to be very competitively priced. Commercial banks can still compete on complex commercial transactions as credit unions are not typically staffed with seasoned commercial lenders, but they are still able to provide better terms than commercial banks on simpler commercial deals with lower risk profiles.