The credit union sector is defying Barbados’ economic stagnation and rising unemployment figures by showing growth, but the smaller cooperatives are at risk of being overwhelmed by delinquent accounts.
The good news, coupled with the warning, came from Financial Services Commission CEO, Randy Graham, as he addressed members of the Barbados Light and Power Credit Union’s annual general meeting over the weekend.
Graham’s assessment of the sector was mostly positive as he noted credit unions had outpaced other non-bank entities in savings and assets, but the incidence of non-performing loans (NPLs) remains a worrying factor
“The closure of the loan portfolio does vary significantly across this sector with NPLs among the smaller credit unions being substantially higher than those among the larger well-established credit unions,” he told credit
“It is something we have to monitor because sustained increases in NPLs will lead to an increase in loan loss provision and a spinoff of negative impact on the profitability of the sector as a whole”.
The chief regulator for the non-banking sector, however, said these cooperatives are doing better than banks.
“Non-performing loans continue to be a factor, of course, given the economic and employment environment, but whereas we have seen increases in the industry NPLs, increases have not been stark and they have lagged behind the banking increases.”
The country’s 35 credit unions have also been stocking up in assets, which Graham said had seen a 7.4 per cent increase in 2014 over the 2013 levels of assets.
Total assets in the non-banking sector, including insurance companies, mutual funds and pension plans, amount to just over $6 billion, with credit unions accounting for $1.7 billion of that amount.
“The beauty about the credit union growth is grounded in the basis that credit unions are established for the financial advancement of its members, so increases in assets typically mean an increase in loans to members for the benefit of those members. The largest contributor to the expansion in the assets of the credit union sector is a 6.6 per cent increase in loans to members.”
“The sector has also seen an eight per cent increase in member deposits year on year, which again shows the confidence that the public of Barbados has in the credit union movement and thus deposit their funds in the credit unions without fear or worry.”
Among those credit unions, the BL&P entity is a leading light.
Graham observed that as at December 2014, the membership stood above 1,700 persons with assets totalling $44.5 million, representing a 216 per cent increase in growth from the start-up in 1984.
“The Light and Power Credit Union has not only proven to be a leader in asset growth, but also a leader in controlling delinquency in the sector,” he said, noting the company’s one per cent NPL rate. “This is astonishing, given the tight fiscal position of this country”.
That Garrison-headquartered financial company has been showing movement in opposite direction to the Barbados economy.
“The expected growth in GDP for the Barbados economy in 2014 was less than one per cent, and unemployment figures were predicted to increase,” Graham said, adding: “The Light and Power Credit Union was able to maintain an average savings per member of $22,205, which is 155 per cent above the industry average of $8,702 per member”.
“It would appear in the scheme of things that this credit union story is somewhat of a factual story tale, and credit must go to the board of directors for their governance during this period,” Graham added.