Savings surge at credit unions islandwide

The island’s tens of thousands of credit union members have been pumping more money into their savings accounts, but the sector’s profitability has waned slightly as fewer members took loans in 2020.

This was revealed in the latest Central Bank of Barbados and Financial Services Commission (FSC) Financial Stability Report which disclosed the sector’s profitability fell slightly.

The regulators pointed out that total assets of the credit union sector continued to grow during 2020, rising by 7.3 per cent on the basis of steady growth in member savings.

“This asset growth was largely reflected in increased liquid assets in the form of cash and short-term deposits. Gross loans, which accounted for an estimated 65 per cent of total assets, registered modest growth.”

At the same time, it was revealed: “Credit unions recorded a return on assets of 0.5 per cent. Total income fell by $8.3 million, reflecting the impact of declining income from interest payments related to loans,” the regulators noted.

It was explained that the dip in credit union profits was “expected” given the moratoria programmes which were offered in the second half of 2020 to members, coupled with the increase in non-performing loans (NPLs).

“Given the reduction in the interest income of 7 per cent, the net income fell by 25.8 per cent when compared to December 2019. Even though there was a reduction of interest and operating expenses, it was not enough to compensate for the reduced interest income,” the FSC and Central Bank wrote.

Noteworthy too was the increase in the sector’s capital which grew by 3.3 per cent as credit unions made greater provisioning for NPLs and IFRS 9 accounting requirements, in addition to issues associated with the impact of the COVID-19 pandemic.

“NPLs accounted for 13.1 per cent of the total loans at the end of 2020, an increase of 3.5 percentage points. This upward movement was mostly driven by a further deterioration in the loan portfolio as the value of loans now being recorded as NPLs in the 3-6-month category increased.

The large stock of NPLs in the 12-month-and-over category is mostly comprised of collateral-backed mortgages and real estate,” the report explained.

At the same time, the regulators pointed out that capital-to-assets ratio fell by 0.5 percentage points to reach 10.5 per cent due to the continued expansion in the asset base.  (IMC1)