BOJ mulls lower minimum capital requirement for start-up credit unions
Sector consolidates, profit climbs 37%
CREDIT unions and the Bank of Jamaica (BOJ) are working out a mechanism to facilitate start-up credit unions who are unable to meet the $5 million minimum capital requirement.
But this will not be included in the impending finalised BOJ Credit Union Regulations that will govern the distinct financial institutions.
The minium requirement is a concern to the credit union movement, said Glenworth Francis, general manager of the Jamaica Credit Union League (JCCUL).
"When credit unions start, the members save, borrow and then build permanent capital from their surplus," said Francis. "Now they are being asked to come up with the capital before they start."
By the end of 2013 credit union membership increased by 3.3 per cent year over year. But the sector contracted to 38 constituent members at end-2013, from 43 at the start of the year, due to an increase in merger activity last year — there were four mergers in 2013 compared with two the year before.
The most recent is the merger between Palisadoes Cooperative Credit Union Limited and Petroleum Industries Cooperative Credit Union Limited, which came into effect in January.
The sector continued to position itself to benefit from the consolidation of capital bases, economies of scale and a streamlining of operations in anticipation of the imminent passage of the regulations, according to the BOJ
Net profits for the credit union sector increased by 37 per cent, to $1.1 billion for the year ended December 31, 2013, according to unaudited returns of credit unions. Consequently, net profit margin across the sector grew from 8.9 per cent in 2012 to 11 per cent last year.
The improvement was primarily driven by the combined effects of 5.8 per cent increase in revenues earned on the sector's expanded loan portfolio, coupled with higher income of 18.1 per cent from fees and service charges, which together outpaced the 3.4 per cent growth in aggregate expenses, said the BOJ annual report.
"Last year's performance was credible, given the state of the economy," said Francis. "We continue to have low or sometimes no fees and members are generally more comfortable with us."
Jacqueline Mighty, CEO of COK Sodality Co-Operative Credit Union said credit unions continue to show that they have a place in the financial services sector and members recognise the growth they bring to them and the economy.
For years, the credit union and the central bank had issues concerning the financial institutions' regulatory framework. Chief among the issues was that credit unions would be allowed to have more than 10 per cent of their loans unsecured, as well as the minimum capital requirement.
The limit on unsecured credit has basically been removed, said Francis.
Both parties agree on the provisioning of unsecured credit with a shorter time than secured credit.
"We make 100 per cent provisions if unsecured loans are delinquent for a certain time," he said, adding that he was not at liberty to disclose the time frame.
The central bank conceded that regulations affecting the credit unions could not be integrated into the same rules for the remaining deposit takers, saying it would be unfair to impose advanced standards on credit unions at this time.
Last year, the BOJ and the JCCUL reached agreement on the provisions to be contained in the draft regulations, in the context of enhancements to the credit framework. These improvements relate to implementation of the new credit reporting framework and the implementation of the Secured Interest in Personal Property Act (SIPPA), which will include establishment of a central registry for the registration of security interests in non-realty assets.
According to the central bank, the league also agreed to the bank's proposals relating to the definitions of unsecured credits, past due credits, non-performing credits and non-accrual credits, provisioning requirements for unsecured non-performing credits as well as certain licensing requirements pertaining to corporate governance and risk management frameworks.
Francis told the Business Observer that each credit union would have an enterprise risk management programme to be administered by the board — to be in place by the time the BOJ regulations are finalised — he figures the rules will come by year end.
Once these regulations are promulgated in Parliament, statutory oversight authority for credit unions will be transferred to the BOJ.
"The league will continue to monitor and set guidelines, while the BOJ will play the supervisory and regulatory role," Francis said.
Other mergers during the year were First Regional Credit Union Limited with Hospitality Industries (formerly SuperClubs) Cooperative Credit Union Limited and Round Hill Cooperative Credit Union Limited, JPS & Partners Cooperative Credit Union Limited with Kirkvine Cooperative Credit Union Limited and Ewarton Works Cooperative Credit Union Limited as well as C&WJ Credit Union Limited with Westmoreland Co-operative Credit Union Limited.