KBRA releases a report that provides an overview of the credit union (CU) industry, examining the evolution, complexity, and nuances within the segmented not-for-profit financial sector. The report summarizes the emerging industry profile while benchmarking them to the broader KBRA-rated universe, analyzes the balance sheet composition and the associated risks, and clarifies the challenges of earning expectations combined with the pressures surrounding incremental funding costs fueled by the earning asset growth. The report also highlights acquisitions activity that has been a larger focus for CUs in recent years.

Key Takeaways

• The consumer-oriented CU financial model for the larger CUs has a diverse field of membership and geographic focus coupled with financial performance generally consistent with investment-grade metrics.
• The National Credit Union Administration (NCUA) has evolved its regulatory framework for CUs to be more consistent with that of the U.S. banking industry.
• The historical failure rates for the CU industry are quite low and negligible for CUs with total assets greater than $1 billion.
• The credit profiles of CUs generally benefit from sizable levels of stable funding from insured deposits. Significant CU balance sheet growth in 1-4 family and auto loans over the last three years has reduced their liquidity positions, and the 1-4 family fixed product has added interest rate risk in the rising rate environment.
• Compared to shareholders of typical corporations and banks, members (or “owners”) of CUs are motivated primarily by advantageous services pricing rather than profit maximization.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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