Surge in credit union loans

More Barbadians went to their credit unions for loans last year, resulting in a more than four per cent increase in loans from those institutions, when compared to the previous year.

This growth, according to the recently released 2018 Financial Stability Report, resulted in an increase in the assets of those institutions.

“The credit union sector experienced growth in 2018, with total assets rising by 9.5 per cent over the period. One significant facet of this growth was loans, which expanded by 4.2 per cent, as the credit union sector outperformed other deposit-taking intermediaries in loan origination,” the report said, without saying the reasons for the loans or how much in dollar figure were loans.

“Nevertheless, this performance represented the slowest rate of expansion of the credit unions’ loan book in the past five years,” it added

The report noted that robust deposit growth caused the credit union sector to grapple with “burgeoning liquidity”, reflected in rising cash and other liquid assets, which nearly doubled.

The credit unions were only modestly impacted by Government’s debt restructuring, the report said.

While not giving a dollar figure of non-performing loans (NPLs) for the sector, the report indicated that those loans rose about 8.9 per cent of gross loans at the end of last year, compared to 7.8 per cent at the end of 2017. The increase in NPLs was almost equally split between the 12-month-and-over and the three-to-six-month categories.

Data for the largest credit union showed that real estate/mortgages continue to be the most significant component of NPLs, accounting for some 57.5 per cent of the total.

This is followed by consumer personal lending, which accounted for approximately 18.3 per cent of NPLs.

“While credit unions continued to write-off loans in the 12-month-and-over category, these were generally unrelated to mortgages,” said the report.

“Subsequently, the 12-month-and-over category of NPLs remains elevated. Provisioning within the sector increased modestly but due to the rise in NPLs, the provisions-to-NPL ratio fell slightly to 28.9 per cent in 2018,” it added.

At the same time, the 77-page document revealed, credit unions witnessed an increase in deposits as individuals continued to seek higher yield than what is available in the commercial banking sector.

“Indeed, deposits grew by an average of 11 per cent per annum in the four years ending 2018, while between 2010 and 2014 the average rate of growth was just under seven per cent per year. Member savings’ over 2018 expanded by 10.4 per cent, with regular and term deposits being the main contributors,” it added.

During 2018 the commercial banking sector remained solvent. Interest rates on deposits remained at historical lows with the average deposit rate estimated at 0.1 per cent throughout the year.

With banks indicating only modest lending opportunities, balances held on reserve at the Central Bank grew by 14 per cent.

After adjusting for both the reclassification of Government loans and the amalgamation of a parent bank with its mortgage lending affiliate, domestic currency credit contracted by about two per cent.

However, there was modest growth in real estate and tourism loans by five per cent and ten per cent, respectively.

The report showed that NPLs in the commercial banking sector had increased by 20 basis points to 7.9 per cent in the first quarter before rising 11.2 per cent by the end of the third quarter.

“This temporary surge in non-performing loans occurred due to the classification of loans to Government and its entities as ‘substandard’ (those that carry a major risk of loss for the lender), following the debt restructuring announcement,” the report explained.

However, by the end of the fourth quarter last year NPLs had reverted to 7.4 per cent as loans to Government were restructured and converted to debt securities.

The substandard category continued to account for the largest share of gross classified debt, accounting for some 78 per cent, while doubtful and loss categories represented 12 per cent and ten per cent respectively.

The report said commercial banks were making considerable strides towards recovering bad debt, adding that this was indicative of recoveries outstripping write-offs for the year.

“Furthermore, write-offs continue to represent a modest percentage of total loans outstanding,” it added.

While individuals continue to account for the majority of NPLs in the financial system, real estate continues to lead most of those loans for the commercial sector.

marlonmadden@barbadostoday.bb