Trend for credit union mergers slowing down

Business

Trend for credit union mergers slowing down

JCCUL no longer encouraging mergers

BY DURRANT PATE
Observer Business Writer

Wednesday, August 12, 2020

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The mergers of credit unions across Jamaica over the past 20 years has apparently 'bottomed out' based on the assessment coming out of a recent Jamaica Observer Business forum with the island's credit union movement.

In 1999 there were 86 credit unions at the start of moves by the Bank of Jamaica (BOJ) to impose regulations on the credit union movement and to implement tighter controls by the central bank, thus replacing the Jamaica Credit Union League (JCCUL) as the chief regulator over credit unions.

JCCUL has been the de facto regulator of the movement since its establishment in 1942. The movement contracted to 45 in 2018 and now has further shrunk to the current 25 credit unions now in operation.

JCCUL Chief Executive Officer Robin Levy disclosed that the league is no longer encouraging mergers as the belief is that the present number of credit unions is adequate for the Jamaican market.

“We are no longer actively encouraging mergers, we were at one time but if mergers occur we will actively facilitate them,” Levy told the business forum.

The last major credit union merger occurred back in September 2018 when Community and Workers of Jamaica (C&WJ) Co-operative Credit Union merged with the St Elizabeth Co-operative Credit Union to become the largest credit union operating locally. C&WJ showed a 90,000-strong membership and 22 branches in Kingston and St Andrew, Clarendon, Manchester, St Ann, St Mary, St James, and St Elizabeth, with assets valued at more than $15 billion.

DOUBTS ABOUT FUTURE MERGERS

The JCCUL boss made the point that mergers may continue but expressed doubt about this happening anytime soon. Levy dismissed a suggestion that the contraction in the credit union movement over the years was due to the tight capital adequacy requirement imposed by the BOJ.

Levy asserted, “The reduced number of credit unions is because many of them have merged not because of capital adequacy. If you look at it probably 90 per cent of those mergers were mergers for additional strength not to fix a shortfall — just want to say that to you.”

He explained that the credit union movement now has more members, more assets even in 1999 dollars, arguing that the movement has actually grown in every way, “except we now have a smaller number of larger credit unions”. The JCCUL CEO advanced the argument that the mergers which have taken place is due to economies of scale and to reduce overheads.

BOJ REGULATIONS

In the meantime, the island's credit unions are eagerly awaiting the final set of BOJ regulations, which will give the central bank full supervisory function over credit unions. The final set of regulations will include concessions negotiated by JCCUL, which includes guarantees about capital formation, and the lifting of the 10 per cent limit on secured loans.

In addition the new regulations will prescribe a regime for licensing credit unions. The first set of regulations was drafted in November 1999 with the full package yet to be put in place.

The JCCUL is anticipating that the remaining BOJ regulations will come into effect sometime next year having been delayed by COVID-19, among other things.


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