Credit union loans grow, but bad debts rise
Published:Wednesday | February 9, 2011 | 12:00 AM
Avia Collinder, Business Writer
Over the past two years, Jamaica's credit unions increased their stock of outstanding loans by approximately 10 per cent, but hiked their provision for bad debt by 78 per cent, reflecting the trend of people's inability to pay in a bad economy.
But even then, their 2.42 per cent, or $899 million, allowance for loan losses in 2010, was significantly below the more than five per cent of the portfolio that commercial banks have had to put aside to cover borrowers who do not pay.
The latest data for credit unions were disclosed by Barrington Whyte, general manager of C&WJ Co-operative Credit Union Ltd and a director of Jamaica Co-operative Credit Union League, in the context of review of the performance of the financial sector in the face of an economy that has been in decline, and thousands of persons have lost their jobs.
According to central bank data, up to last year's third quarter, outstanding loans by commercial banks were down two per cent on a year earlier, while the value of those for other central bank-regulated institutions were down 13.5 per cent.
On the other hand, the loan books of credit unions, in dollar terms, increased 2.5 per cent, remaining in positive territory, although the growth was substantially slower than the 7.2 per cent of 2009.
This translated to total loans of $37.08 billion in 2010, a $3.28 billion, or 9.7 per cent, increase over the two-year period.
But with more loans going bad, credit unions have sought to protect themselves with higher provisions.
"The level of delinquency is rising, in keeping with what is happening in the rest of the financial sector," said Whyte. "With growing arrears, we thought it prudent to improve provisions for loan losses. This ensures that where loans may be doubtful, something is in place."
There are now 40 credit unions in Jamaica after a number of recent mergers. More than 900,000 people are members of credit unions.
Combined, credit unions have assets of $59.2 billion - representing a 10.7 per cent growth in 2010 that followed a near 12 per cent expansion a year earlier.
Flat asset growth
The asset growth of institutions regulated by the central bank was flat last year, after a nine per cent growth in 2009.
The growth in credit unions assets has resulted in lowering of their loan-to-asset ratio from 67 per cent in September 2008 to approximately 60 per cent, providing space for the institutions - which have set their loan-to-assets ceiling at 80 per cent - room to develop new loan products.
Said Whyte: "These products and opportunities will involve investing in our members and include small-business loans; education loans to help our members to retrain and retool in this extremely competitive marketplace; mortgage loans in conjunction with NHT (National Housing Trust); debt-consolidation loans to help improve our members cash flow and insurance-premium financing."