CariCRIS developing rating model for credit unions
Published:Wednesday | February 1, 2012 | 12:00 AM
Sabrina Gordon, Business Reporter
Regional credit rating agency CariCRIS is working on a model to start rating credit unions across the Caribbean to supplement the work of regulators of the multibillion-dollar sector.
The sector made of small community lenders manage saving pools that are large enough to pose systemic risk, according to Wayne Dass, chief executive officer of CariCRIS.
He cited the market in Trinidad and Tobago where credit unions manage funds amounting to TT$6 billion, or about US$1 billion.
Credit union savings in Jamaica exceeded J$50 billion (US$587 million) at last reported statistics for June 2011 across an estimated 43 entities - equivalent to 13 per cent of the commercial banking sector where the seven banking groups hold deposits of J$384 billion (US$4.5 billion).
"The credit union sector currently potentially poses a huge systemic risk to the region, based on the large amounts of funds under management and the current lack of proper regulation in the main of this sector," Dass said on the closing day of the seventh annual investment and capital markets conferences hosted by the Jamaica Stock Exchange in New Kingston.
Threat of failure
Credit unions were set up as friendly cooperatives across the region and are largely self-regulated. Jamaica is finalising a different monitoring system for the credit unions, which as deposit-taking institutions will be regulated by the Bank of Jamaica.
Dass, whose agency operates from Port-of-Spain, pointed to the failure of Hindu Credit Union in Trinidad as a case to heed.
Still, there have been no widespread reports of failures. Inside Jamaica, however, several of them have merged operations in order to comply with the BOJ's more stringent requirements for capitalisation ahead of the regulatory regime change.
Dass, who gave a resounding yes on the need for rating agency watchdog while speaking on the topic: 'Is there a need for a rating agency watchdog', said credit unions need the same level of supervision and continuous monitoring as banks, to ensure depositors' fund are safeguarded against excessive risk-taking and imprudent financial management.
A credit rating agency watchdog, he said, would force the cooperatives to improve transparency of their operations and reduce conflicts of interest.
The rating of credit unions would add another line of business for CariCRIS, which now provides rating for sovereign debt and companies spanning sectors such as commercial banks, construction, manufacturing, petrochemical, utilities, brokerage houses, insurance, telecommunications, and engineering sales and service.
The agency also rates small and medium enterprises in the woodworking, metal works, gasolene retail services, interior design, shipping services, retail, distribution, and personal care sectors.
At its financial year ending March 2011, CariCRIS had completed 56 ratings, a 124 per cent increase over the 25 ratings completed in the previous year.
Its operating income shot up 27 per cent to US$824,450, from US$648,025 in the prior year.
This growth, CariCRIS said in the chairman's report, was driven by a 20 per cent increase in ratings and surveillance income to US$679,750, up from US$565,000 for year ending March 2010, as well as a 200 per cent increase in training income.
Working in collaboration with the umbrella group for credit unions in Trinidad, Dass said CariCRIS is already far along in developing a rating model similar to that for banks, to reflect the institutions' creditworthiness and likelihood of defaulting on debt or deposits at any point in time.