DIRECT DELINQUENCY VS INDIRECT DELINQUENCY
FOR U.S. CREDIT UNIONS | DATA AS OF 09.30.23
© Callahan & Associates | CreditUnions.com
- Delinquency on indirect loans has been higher than for direct loans in recent quarters, which is a reversal of earlier trends. In the third quarter of 2023, indirect delinquency reached 0.85%, 17 basis points higher than direct. Credit unions use indirect lending to source loans through third-party channels; however, this rise in delinquency shows the strategy is not without risk.
- Indirect lending at credit unions, which mostly comprises auto lending, increased 35.1% in 2022 and 9.6% in 2023 as credit unions used the channel to make up for plummeting loan originations and foot traffic during the COVID-19 pandemic. As of the third quarter of 2023, indirect loans made up an all-time high of 22.2% of the loan portfolio.
- Delinquency for both indirect and direct lending at credit unions rose 61 basis points year-over-year. This general deterioration in asset quality is important to watch as interest rates remain elevated. Credit unions currently have set aside $1.66 for every $1.00 of delinquent loans, which is down from $2.16 in March of 2023 but still a healthy cushion.
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