This article was originally published on CU Insight
In an increasingly interconnected world, geopolitical events have a significant impact on global financial markets, which undoubtably includes credit unions. These events, such as political upheavals, regulatory changes, and economic fluctuations, can create both opportunities and risks for credit unions. By using geopolitical insights as a catalyst, credit unions can leverage predictive forecasting to stress test and make informed decisions.
Imagine this, using recent events for comparison, how would you have planned differently had you anticipated the potential impacts of the pandemic, global shutdowns, supply chain disruptions, inflation, member trends, banking collapses, and history-making interest rates?
Current State
As reported by Callahan on their Q1 Trendwatch 2023 webinar:
- Year-to-date loan originations in the first quarter declined by 29.5% to $135.7 billion, compared to $192.3 billion in the first quarter of 2022
Real estate loan originations shrank by 43.6% and non-real estate originations fell by 18.2% - Rising prices of homes, cars, and interest rates are putting pressure on potential borrowers
- The average price of a new car in March was nearly $48,008, which is 20% higher than the average price in March 2019
In the first quarter, the allowance for loan and lease losses, which is set aside to cover potential losses on loans, increased significantly to reach 1.13% of outstanding loans. Credit unions took this measure due to the implementation of the new CECL (Current Expected Credit Losses) charge-off methodology, ensuring they have enough coverage for loans that may not be recovered. The rise in allowances resulted in a coverage ratio of 215.4%, meaning that more than double the potential amount needed to cover delinquent loans is now allocated. This increase in allowances reflects a worsening asset quality across the credit union industry.