A report, The Non-Bank Chronicles: The Rise of Credit Unions, by Keefe, Bruyette & Woods (KBW) examines the competitive impact of the credit union industry on banks.
KBW launched The Non-Bank Chronicles with the objective of examining various non-bank competitors, analyzing the scope and methods to which each competes, and how banks can effectively fight back to protect and profitably grow their market share.
The report notes that the credit union tax exemption affords credit unions considerable room to competitively price loan and deposit products, which has helped drive significant growth over the last several decades.
In fact, credit unions are the only non-bank competitor that can offer customers a federally insured deposit product.
Since 2005, credit unions have seen their market share of United States consumers steadily grow, with deposits expanding 108 percent from $578 billion to $1.2 trillion or approximately 9.2 percent of all federally insured deposits in the country.
According to a survey of 114 bank executives covered by KBW, 52 percent identified credit unions as the “greatest threat” to their ability to profitably grow in the future.
Moreover, 68 percent of the respondents indicated that they expect credit union market share to increase in future years.
Bankers noted that the most challenging areas from credit union competition are retail deposits, followed by retail lending. Unsurprisingly, 82 percent of respondents selected “rate offered on loans / deposits” as a credit unions’ top method of competing, followed by 54 percent indicating that loan structure is the second most likely form of competition.
The report also notes that credit unions are expanding into the commercial lending space, which poses a significant competitive threat to for banks with under $10 billion in assets. Eighty-nine percent of the bankers reported noticing an increase focus on small business customers over the last five years.
While KBW analysis found that credit unions offer better rates on loans and deposits, KBW noted that the recent improved profitability of credit unions could suggest the full tax advantage benefit is not being passed through to consumers.
KBW believes competitive challenges posed by credit unions can be added to the list of reasons supporting further bank consolidation.
Despite the challenges posed by credit unions to community banks, KBW does not expect any changes in the political status quo in the near term.
Read the report.
OK. Ninety percent of deposits is not enough for bankers. Then again, how many bankers do not want consumers constantly in their branches to reduce profitability. And as to consolidation, I don't believe credit unions have any impact in the California merger of Rabobank and Merchants Bank. The same applies to many bank mergers. The needs of the shareholders to maximize value usually comes at the point of the sale of the institution. Again, nothing to do with credit unions.
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