Effect of Abnormal Loan Growth on U.S. Credit Union Performance

Abstract

This study examined the relationship between abnormally rapid loan growth and its impacts on U.S. credit union performance during 2007 – 2013. Three hypotheses were developed to test whether and how abnormal loan growth affects default risk, profitability, and solvency in credit unions. This study found that 1) rapidly loaning credit unions had larger average loan loss, smaller average profitability and solvency than normally loaning credit unions; 2) market concentration exhibited a negative and significant impact on default risk, profitability, and solvency; and 3) A size of credit union also exhibited a negative and significant impact on profitability and solvency. These results suggest that supervisors and boards of directors of credit unions should consider rapid loan growth as an early warning sign of risk.