THE Jamaica Cooperative Credit Union League (JCCUL) says that the community savers have been removing inactive members, resulting in reduced enrolment. Members numbering 34,805 have lost status as enrollees in the last year.

The credit unions, in addition to removing inactive members, are meanwhile also moving to comply with The Proceeds of Crime Act (POCA) and the Data Protection Act, similar to what is being done in the commercial banking community.

Membership cut

Membership of the island’s 25 credit unions was reduced to 1,000,157 at December 2021 compared to 1,034,962 at December 2020, according to communication sent to the Jamaica Observer on Monday March 28.

An account is considered dormant if it has had no transaction activity for one year or more.

In further clarification of the culling of membership, acting member services manager at JCCUL, Phueona Reynolds said “A member can be removed by expulsion, in keeping with the provisions of the Co-operative Societies Regulations and by extension the credit union’s rules.”

“The member would cease to hold membership in the credit union, and all unencumbered savings and permanent shares would be returned once the member closes the account. Until then, the funds are held as unclaimed balances.”

Reynolds added, “Permanent shares vary across credit unions. At the high level it is $3000 while others may charge less. The shares attract dividends annually.”

It is estimated that members who were either removed or closed their accounts in 2021 have $104.15 million in permanent shares plus any savings held on account.

“Unlike the banks, credit unions are not required to remit the funds to the accountant general. Once they come to reactivate the account or close it, the funds will be there. If you come and you want your money, you will get your money.”

Returns

“Returns on permanent shares are in the form of dividends, which are paid once the distribution is approved by the Department of Co-operative and Friendly Societies and the credit union’s members at a general meeting. If a member terminates his membership prior to the period of declaration of dividends no returns would be made on the permanent shares,” Reynolds explained.

The Business Observer queried the total amount owed to the members removed. Reynolds said this would be provided at a later date.

The island’s credit unions, nevertheless, continue to grow assets and member savings. As at December 2021, total assets were $150.4 billion, a 9.86 per cent increase over $136.9 billion in assets held as at December 2020.

Member savings also climbed to $116.7 billion as at December 2021, an increase of 10.3 per cent over savings of $105.8 billion at year end 2020.

While the credit union league did not share loan totals, it was pointed out that motor loans continued to dominate with consistently more than 65 per cent of the total credit union loan portfolio.

In the last decade the number of credit unions have shrunk to 25, coming down from over 40.

In the last decade there have been 16 mergers while two credit unions converted to thrift societies.

The existing 25 credit unions now reflect, altogether as at December 31, 2021, a solvency level (all credit unions combined) of 124.07 per cent.

The group will soon come under supervision from the Bank of Jamaica (BOJ), as opposed to the Registrar of Industrial and Provident Societies.

Provident societies are created within companies to improve the welfare of workers, often making loans to them. Incidentally, a Bill to amend the Industrial and Provident Societies Act, already passed by the Lower House of Parliament, makes provision for these societies to be supervised and monitored by the Registrar of Co-operatives, instead of the Companies Office of Jamaica.

The JCCUL’s future regulator, the BOJ utilises the CAMELS supervisory tool alongside the BASEL standards to assess performance of financial institutions.

CAMELS is a recognised international rating system that bank supervisory authorities use to rate financial institutions according to six factors represented by its acronym, which stands for capital adequacy, asset quality, management, earnings, liquidity, and sensitivity. Supervisory authorities assign each bank a score on a scale. A rating of one is considered the best, and a rating of five is considered the worst for each factor.

Banks that operate internationally are required to maintain a minimum amount (8 per cent) of capital based on a percent of risk-weighted assets. Basel I is the first of three sets of regulations known individually as Basel I, II, and III, and together as the Basel Accords.

These measures are similar to PEARLS, the current international standard applied to credit unions, in relation to some areas such as capital and liquidity requirements, Levy outlines.

Financial ratios

PEARLS is a set of 45 financial ratios used to evaluate and monitor the financial stability of credit unions within the World Council of Credit Unions (WOCCU). The ratios fall under six critical areas of financial performance which are protection, effective financial structure, asset quality, rates of return and costs, liquidity, and signs of growth.

Reynolds told the Business Observer, “The movement awaits the finalisation of the Credit Unions (Special Provisions) Act to codify the performance requirements for the sector.

“We do not expect much by way of operational change as credit unions already meet high prudential standards and have been reporting on such to the BOJ for more than a decade. The last update we have on the legislation is that it is with the drafters for final preparation.”

She notes meanwhile, “Credit unions have been reviewing and revising their organisation structures to ensure that all areas of operations are adequately staffed and in keeping with regulatory requirements.

“The focus in recent years has been in filling the position for risk management and ensuring the appointment of a nominated officer in keeping with the POCA. Credit unions are also now making provisions to comply with the Data Protection Act, which may require new staffing needs.