According to most economicindicators, credit union loans are on the upswing. In this case,the rising tide of loan demand raises most boats, with a fewsectors still swamped for various reasons.

Despite industry cautions to the contrary, the NCUA issupportive of the increases for credit unions with sound lendingpractices.

“(The) NCUA doesn't have an issue with loan growth,” NCUA ChiefEconomist John Worth said. “Credit unions need to adhere to soundunderwriting standards and be mindful of diversification, liquidityand interest rate risk considerations.”

Consumer loans seem to making the fastest strides, helpingcredit unions increase short-term assets on their balance sheets.Total loans grew an average of 8.8% between first quarter 2013 andfirst quarter 2014, the fastest growth in loans since before the2008 recession, Worth said. Auto loans and credit cards aredriving the upsurge, clear indications of increasing consumerconfidence, the chief economist added.

However, not all sectors are performing at the same levels.Long-term real estate loans are slowing their decline, whichstill indicates progress of a sort, Worth said.

“While the stock of mortgages on balance sheets grew by 6.8%since last year, there was a sharp drop-off in new originationscompared to the last several years,” Worth said. “This drop-off tojust over $21 billion for first quarter 2014, compared to nearly$40 billion in first quarter 2013, reflects broader marketforces.”

“Nevertheless, this slowdown was reflected in a drop innon-interest income in first quarter 2014, which we partiallyattribute to lower fees from mortgage originations,” Worthadded.

Large credit unions are having better luck riding the lendingwave than smaller credit unions, some of which have seen their loanportfolios contract. In fact, credit unions with more than $1 billion in assets saw their portfolios expandan average of 12.8% since first quarter 2013, a bounty that hasn'tbeen experienced by their smaller counterparts.

“This is indicative of the overall performance gap between largeand small credit unions, and there are a number of drivers,including demographics, field-of-membership issues, economies ofscale and others,” Worth said. “Small credit unions are naturallyimpacted by economy of scale issues. As such, forming strategicalliances with other credit unions and CUSOs and doing loanparticipations are ways they can overcome some of their sizelimitations.”

Despite some positive trends, credit unions are still uncertainabout loan growth due to mounting consumer debt and astill-stumbling housing market.

NCUA's pending risk-based capital rule also is causing anxiety,and could significantly influence the way some credit unionsoperate, depending on how the final rule is written. Worthdismissed the rule's effect.

“RBC, which is still in the proposal stage, is not about tryingto get credit unions to stop taking risks,” Worth said. “It isabout making sure that capital is commensurate with the assets ontheir balance sheets. There are no bright lines.”

Good lending practices will be required no matter what the finalrules says, according to the chief economist. How creditunions balance their portfolios will determine their overallsuccess.

“Concentration risk is an important consideration, as is managedgrowth for products that are complex or new to a credit union,”Worth said. “Ultimately, the real constraint on growth is networth, and a credit union should not hold more assets, loans orinvestments than its capital reserves can support.”