WASHINGTON—A new report by Keefe, Bruyette & Woods (KBW) examines the competitive impact of credit unions on banks.
The report, “The Non-Bank Chronicles: The Rise of Credit Unions,” is part of a series the company said examines 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,” stated Keith Leggett, the former senior vice president and senior economist at the American Bankers Association, in his analysis.
Since 2005, credit unions have seen their market share of United States consumers steadily grow, with deposits expanding 108% from $578 billion to $1.2 trillion or approximately 9.2% of all federally insured deposits in the country, Leggett noted.
The ‘Greatest Threat’
According to a survey of 114 bank executives covered by KBW, 52% identified credit unions as the “greatest threat” to their ability to profitably grow in the future, stated Leggett. “Moreover, 68% 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% of respondents selected “rate offered on loans/deposits” as a credit unions’ top method of competing, followed by 54% indicating that loan structure is the second most likely form of competition,” Leggett said.
The KBW report also notes that credit unions are expanding into the commercial lending space, and suggests the move 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, Leggett said.
“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,” Leggett said.