For the second time in the 2014/2015 financial year one of this island’s credit unions has found itself in hot water with the Financial Services Commission (FSC).
The regulatory last month ordered the Barbados Secondary Teachers’ Union Cooperative Credit Union Limited to immediately stop writing any new business, in response to a high level of loan delinquency. The move came amid stepped up scrutiny by the FSC, which recently lifted a similar order issued against the Seventh Day Adventist Credit Union.
In confirming the development, the FSC’s CEO Randy Graham told Barbados TODAY that order, which was issued back in February against the BSTU Credit Union, would remain in effect for one year.
He explained that the action had become necessary since the credit union’s ratios were “going in the wrong direction”, as a result of several outstanding loans in “delinquent status”.
“Given the balance sheet of the credit union, we temporarily suspended some of the operations of the credit union, mainly for the issuing of new loans,” Graham said.
He also described the FSC’s move as “pre-emptive and corrective” action, saying it would allow the regulator to monitor the bank account of the credit unions during the temporary suspension period while affording the credit union the opportunity to bring its operations back in line, before they are re-evaluated.
While the suspension may be deemed a blow to the credit union in terms of its ability to take on new business, the FSC head pointed out that the credit union’s historical portfolio would not be impacted. Therefore, he said, “as members continue to repay loans and interest income comes in, the credit union can still generate income”.
However, he warned that based on the FSC’s review of its operations, the current balance sheet could not sustain any new loans.
“The suspension gives them a period to continue taking deposits, build up their cash base and hopefully, once they resuscitate, start to issue loans again once we lift the suspension,” he said.
Barbados TODAY understands that some non-members of the BSTU Credit Union have been issued with loans as high as $50,000, which is in direct contravention of the Cooperative Societies Act.
Additionally, several loans issued to credit union members have reportedly run into delinquency, following a recent increase in interest rate charges.
Sources within the credit union have also reported that following the FSC’s recent investigation the financial transactions of credit union officials have come under greater scrutiny, with dismissal now being suggested for at least one senior member over his failure to meet personal loan commitments.
However, the FSC top official has made it clear that the recent suspension of the BSTU Credit Union was not premised on any concerns about operational issues.
He said the regulator’s action was based solely on “the strength of the credit union’s balance sheet in relation its issuance of loans.
“They are not to the point where [the current level of non performing loans] is irreversible. If it was, we would have taken a different type of action,” Graham said, noting that the accepted benchmark for loan delinquency was in the range of 20-25 per cent.
In the meantime, another senior official, who did not want to be identified, has suggested that “senior management [of the FSC] had good reason to take enforcement action against the union to bring them back in line, as required by the law”.
The official pointed that the commission was duty bound by law to protect depositors whose monies were vested in credit unions and other financial institutions.
He stressed that the FSC, which also regulates local insurance companies, pension plans, mutual funds and other securities, had to do its work “without fear or favour”, arguing that in cases where its management was found to be negligent in this regard, they should not hesitate in placing their letters of resignation at the disposal of the Minister of Finance.
In the wake of the CLICO debacle, which dates back to 2009, he stressed, “it is important that public confidence be maintained in financial institutions”, while noting that the FSC had a wider remit than the Central Bank which overseas five commercial banks.