Slower Deposits, Moderate Lending, Increasing Delinquencies

Thirty-six credit unions participated in S&P Global Market Intelligence’s recent survey of 142 financial institutions nationwide (2023 U.S. Banking Outlook Survey), with their combined responses predicting higher interest rates, slower annualized deposit growth, moderate yearly lending growth, increasing loan delinquencies and charge-offs, and some sort of economic recession this year.

The survey revealed that credit union leaders and bankers expect the following to transpire in 2023:

Credit Deterioration and Economic Recession

• Credit union leaders and bankers (combined) are forecasting credit deterioration and an economic recession by sometime in summer — most likely late summer.
• They expect credit union and banks’ combined net charge-off ratio to increase, with more than 30 percent of respondents predicting lower credit quality this year for consumer auto loans and commercial real estate loans.
• The Federal Reserve’s short-term “federal funds” target interest rate range will most likely remain above current levels as inflation drops but stays relatively high throughout the year.
• You can view more economic and credit deterioration survey results here.

Deposit Betas Expected to Accelerate

• A majority of credit union leaders and bankers (combined) expect deposits (from an aggregate perspective) will remain stable or even increase at their institutions in 2023.
• However, these deposits are likely to come at a much higher cost as their annualized growth rate drops this year compared to the past couple of years (decreasing supply of funds), with many thinking deposit-product interest rates may rise at a faster pace compared to 2022.
• Slightly more than half of respondents anticipate consumers to deposit much less money over the next 12 months.
• Overdraft fees are likely to keep dropping amid competitive pressures and regulatory scrutiny.
• You can view more deposit beta survey results here.

Mergers and Acquisitions Amid Slower Growth and Rising Costs

• Forty-three percent of credit union leaders and bankers (combined) believe their institution is “somewhat likely” or “very likely” to consider an acquisition this year, while one-in-10 respondents believe their company is at least “somewhat likely” to consider selling.
• Average employee compensation is expected to increase by roughly 4 percent this year.
• Over two-thirds of respondents expect total loans will increase at their institution over the next 12 months.
• You can view more mergers/acquisition survey results here.