Credit Union Growth Implications of the Loan-to-Share Ratio for the CU Industry


Implications of the Loan-to-Share Ratio for the CU Industry

loan-to-share ratioThe loan-to-share ratio can be deceiving. It’s calculated by dividing the total amount of outstanding loans by the total amount of share deposits. While this ratio serves as a good indication of a credit union’s liquidity, it also shows the level of risk a credit union is willing to take on. Generally speaking, credit unions with a high loan-to-share ratio are taking on more risk to increase their profits. 

Current Numbers

Credit Union Industry as a Whole

As of the close of the first quarter of this year, the loan-to-share ratio on a national scale marked an ascent to 81%. This figure finds itself nestled between the heights of borrowing observed in 2018, a year characterized by notably subdued interest rates, during which the loan-to-share ratio stood at 85%. In the throes of the COVID-19 pandemic, the loan-to-share ratio experienced a dip, ranging between 68% and 70%. Notably, this marked a historic low, a level not witnessed since the aftermath of the Great Depression when the ratio plummeted significantly into the 60s.

States with the Most Growth

One of the ways loan-to-share ratios can be deceiving is that high ratios do not necessarily mean that the credit union has large loan and share balances. It’s possible for a credit union to have the largest loan-to-share ratio in their region while also having the lowest loan and share balances. The states with the biggest increase in their loan-to-share ratio over the year are Idaho (12.4%) and Arizona (10.2%).

States with the Highest Loan-to-Share Ratio

The state with the highest overall loan-to-share ratio is Idaho at 89%. Following closely behind is Wyoming at 85%. A ratio that high indicates that loan growth is far ahead of deposit growth, so it’s likely that Iowa credit unions will start to cut back on lending or seek additional deposits to increase their liquidity.

States with the Lowest Loan-to-Share Ratio

The states with the lowest loan-to-share ratio are Delaware at 42% and New Jersey at 46% last quarter. Although a lower loan-to-share ratio means that the credit union is better equipped to pay when it is required, it also means that they are not making as much money as they could. 


What do These Numbers Mean for the Credit Union Industry?

Loan growth is at an all-time high.

With increasing loan-to-share ratios comes loan growth. The credit union industry’s portfolio has increased by over 20% just last year. That is over $250 billion, taking it to a total of $1.5 trillion. While auto loans have been on the decline throughout 2018, first-time mortgages and credit cards are gaining momentum, which have certainly contributed to the industry’s record-breaking portfolio.

Credit unions are tightly managing their liquidity.

In times of economic prosperity, people are more likely to take out loans. While this holds true in the current climate, credit unions are tightly managing their liquidity as loan volumes increase. To counteract the deficit in loans vs. deposits, credit unions are turning to share certificates and high-yield money markets to balance increasing loan volumes.

More members are turning to credit unions.

Membership across the credit union industry added 5.8 million members last year, which equates to 135.5 million members at the end of 2022. Not only are credit unions seeing an increase in members, but an increase in usage as well. Members are investing more money with credit unions, and their account balances are rising. It’s likely we’ll see member volume and engagement continue to rise.


Moving Forward

As the U.S economy continues to grow, so will loan-to-share ratios. While this is beneficial to the financial industry, credit unions must also consider how they can manage their liquidity as loan growth continues. In some cases, credit unions may enact tighter lending policies and others may seek additional instruments to help balance deposits and loans better. These strategies will not only be influenced by national performance, but on state and regional levels as well. Come the following years, it will be interesting to see which states have taken steps to limit lending as others continue to fuel loan growth.


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Updated: August 2023


Preston Packer

Written By: Preston Packer

Executive Vice President | CMO at FLEX Credit Union Technology
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