Firm Specific, Financial Development and Macroeconomic Determinants of Credit Union Lending

Credit unions are set up to provide financial services, especially loans to members in a cooperative setting. The increasing competition from banking and non‐banking financial institutions implies credit unions must provide financial products and services with a clear understanding of factors that interact in this competitive industry. This paper evaluates the discretional and non‐discretional factors that tend to influence loans credit unions grant their members. From fixed effect model estimate, discretional factors such as size, profitability, management quality and solvency positively associate with credit union loan business whiles loan loss, net worth, non‐loan income and non‐loan activities associate negatively. Contractionary monetary policy creates an increase in loan demand in the credit union. Credit union managers should monitor developments taking place in the loanable funds market as increasing overhead cost of banks may imply a possible increase in loan demand leading to diseconomies of scale.