Credit unions shift toward mergers
Published:Sunday | July 4, 2010 | 12:00 AM
Avia Collinder, Business Writer
Merger talks are on in earnest in the credit union movement as the entities seek greater economies of scale and try to rein in costs in a tight market.
"We are committed to seeing it happen,"Johnathan Brown, president of the Jamaica Co- operative Credit Union League, (JCCUL) said.
"There are gains to be made from economies of scale and serving larger groups at lower costs."
While no details of current discussions have been ascertained, mergers, Brown said, would be beneficial in light of looming Bank of Jamaica (BOJ) oversight for credit unions.
Some of the larger players are on the look-out for prospects. The movement's No. 3 player, Churches Cooperative, in May declared it was on the lookout for merger/acquisition targets.
Brown said that the post-Jamaica Debt Exchange (JDX) environment provided an opportunity for the institutions to change direction and act together in providing service to their just under one million members.
Interest income declines
Like other financial institutions, credit unions suffered interest-income declines with the JDX, but have not disclosed the extent to which they have been affected.
Credit unions which invested primarily through the JCCUL have been protected against liquidity shortfalls, Brown said.
JCCUL General Manager Glenworth Francis said while no credit union has indicated an intention to merge operations with another during 2010, some interest has been expressed in this regard in the northwestern southern mid-island regions, which for years have been "exploring additional way in which they can cooperate".
Industry sources have said that merger possibilities have become increasingly attractive for credit unions in the bauxite belts of St Catherine, Manchester and St Elizabeth, where closure of mining operations has affected savings and loans negatively.
Francis is of the view that mergers could lead to service improvements through greater technology introduction.
General Manager of St Thomas Cooperative Credit Union, Hopeton Morris, has also weighed in, pointing to the potential benefits of consolidation, including the recent collaboration between his and five other credit unions in eastern Jamaica administering a J$96 million, European Union-funded banana-farming rehab- ilitation project.
Mergers are not new to the movement. Last year, COK acquired Sodality to create a J$7.7 billion operation by assets to solidify COK's pole position in the industry.
But members of the movement are quicker to cite a four-year-old deal - the amalgamation of St Ann Cooperative Credit Union Limited
FRCCU was ranked first in asset growth among credit unions in 2009, with a 12.28 per cent improvement for the year, reaching J$2.32 billion at May 2010.
The financial institution is being held up as a model in the movement after also recording a 10 per cent improvement in savings between 2008 and 2009, reaching J$1.71 billion in May. Its loan- delinquency rate was at three per cent in December that year, said Patricia Smith, chief executive officer of the 10-branch institution.
The merger then was a response to "less-than-buoyant economic activities in St Mary", said Smith.
It was believed then, and subsequently proven, she said, that the merger would create a stronger entity in terms of increased asset base, dividends and wider product offering.
Still a small player
In 2009, Jamaica's credit unions grew their asset base by 12 per cent to J$56.5 billion.
The movement, however, rem-ains a very small player in the wider 'deposit-taking' financial sector in which building societies hold assets of J$160 billion and the banks J$600 billion.
Total savings lodged with credit unions at December 31 stood at J$44.1 billion, while the sector had J$36.2 billion in issued loans.
These figures appear to have set credit unions in a good position to meet capitalisation requirements being set by the central bank under new regulations being drafted.
"On the current data available to the BOJ, the credit union movement would be substantially in compliance with the proposed regulations in the area of capital requirements," the BOJ said this month in response to Sunday Business queries.
Even where compliance was not immediately achieved, the central bank said, the draft regulations would allow a reasonable time for transition.
"The regulations were drafted after much dialogue with the industry, taking into account the nature of the various operations and the best-practice standards established by the World Council of Credit Unions," the BOJ said.