January 7, 2025
Let’s be honest, there are few credit union leaders who will bemoan the passing of 2024. Across the system, the year was marred by sluggish growth, increased delinquency rates, and the continuation of a years-long struggle with liquidity.
However, while some challenges will undoubtedly persist into 2025, industry insiders are cautiously optimistic about the year ahead, buoyed by anticipated regulatory shifts, the promise of renewed economic stability, and the opportunity to embrace evolving deposit strategies.
A Year to Forget
First, the bad news. According to new data from America’s Credit Unions, credit union loan growth was flat in October 2024, rising just 0.4%—the same pace as the previous month. There were, admittedly, notable gains in home equity loans (+3.3%) and fixed-rate mortgages (+3%) while on the deposit side, savings balances increased by 0.7%, but despite this modest uptick, deposit growth remained well below historical norms.
The loan-to-savings ratio, a key measure of liquidity, stood at 84% in the same month, slightly below its September level but still significantly higher than the long-term average of 76%. While this elevated ratio has supported earnings, it also raises concerns about liquidity constraints, particularly if loan demand accelerates in 2025, as broadly expected.
Of course, a complete picture of 2024’s performance is still several months away, but few are anticipating a festive bump seismic enough to shift the needle on what was, otherwise, a year to forget.
Economic Ease on the Horizon
Despite these headwinds, several factors point to brighter prospects ahead. First, while Fed Governor Cook’s recent remarks were cautious at best, interest rates remain widely tipped for further reductions in 2025. This would reduce the cost of funds and stimulate both consumer and business lending, with the latter category increasingly mooted as a growth opportunity for credit unions.
To get money out the door, however, credit unions must first have it in store, and this is perhaps the main reason for optimism in 2025. Yes, overt concerns around liquidity remain, but there are also—for the first time in years—undeniable glimmers of hope.
Growth Opportunities for Credit Unions
Diversifying loan portfolios will be critical for growth in 2025. With the price of mortgages expected to remain high regardless of Fed cuts and credit unions still lobbying for increased access to the Federal Home Loan Banks, home improvement loans present a promising avenue. “People hate their home but love their mortgage,” said LendKey’s CEO, Vince Passione, in a recent interview, and with an aging housing stock and increasing demand for sustainable upgrades, credit unions are exploring embedded finance opportunities with home improvement contractors as a growth opportunity.
Analysts also expect the incoming political administration to open up education lending. While the President-elect’s pledges to dismantle the Department for Education have not been met with universal support, some significant changes to the U.S. student loan system are anticipated and could spur an uptick for credit unions.
A strong focus on shifting education lending from federal sources to private lenders is cause for optimism, as education lending really isn’t a product—it’s a solution for acquiring long-term members and deposits.
Light at the End of the Tunnel
While 2024 may have ended on a flat note, there is a framework for recovery and growth over the next 12 months, with LendKey positioned to help credit unions thrive throughout.