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Merger with ICD co-op could signal shift to loan growth for C&WJ credit union

Published:Wednesday | May 6, 2015 | 5:00 AM
General Manager of C&WJ Cooperative Credit Union Limited, Barrington Whyte.

Community and Workers of Jamaica Co-operative Credit Union (C&WJCCU) will merge with ICD & Associates Co-operative (ICD&A) next month.

The approval, given by its members at an annual general meeting last Saturday, paves the way for large capital to match a strong appetite for loans shown by the members of the smaller organisation.

Moreover, not only does ICD&A add just shy of 7,000 persons to C&WJCCU's 65,000 membership base, it also expands the larger entity's bond to serve all persons living in Kingston as well as the employees of a list of prominent companies, including Facey Commodity, Progressive Grocers and Guardsman Group.

Mergers have certainly defined the credit union sector in recent times - three are expected in 2015 alone.

This merger marks the fourth for C&WJCCU in five years. The financial co-operative merged with Marine and Allied Industries Co-op in 2010, Clarendon Co-op in 2011 and Westmoreland Co-op in 2013. Over that time, its asset base grew from $3.2 billion in 2010 to $7.7 billion last year, which firmly places C&WJCCU in third position behind First Heritage Co-operative (FHC), which had $8.9 billion in assets at the end of 2014.

ICD&A will tack on another $240 million in assets, but perhaps the smaller operation's loan portfolio, which totalled $179 million at December 2014, is a better indicator of what the merger could mean for C&WJCCU.

"ICD&A is unable to meet the loan demands of its members," was one of the reasons for the merger provided by Barrington Whyte, general manager of C&WJCCU. "Its savings are not growing to match the loan demand."

The financial co-operative that will be subsumed by the larger organisation has less savings deposited in its coffers - $165 million - than it is owed by its members. However, ICD&A is traditionally more aggressive at lending than its soon-to-be-married counterpart and its loan portfolio is 75.6 per cent of its assets. That's right within the 70-80 per cent range established as a benchmark by the World Council of Credit Unions under the PEARL system.

On the other hand, C&WJCCU has been conservative in its lending. After the global financial crisis took off in 2008, its loan book fell from 74 per cent of its assets to 56.8 per cent in a single year. It surpassed the 60 per cent mark in one year - 2012 - but it has substantially remained in the 50 per cent range since 2009.

Comparatively, the other three credit unions among the largest in terms of assets maintain net loan-to-asset ratios ranging from 67-70 per cent, with COK Sodality having the lowest ratio.

City of Kingston merged with Sodality in 2009 to form COK Sodality, but it has struggled to grow its asset base over the years - its assets hovered at $7.1 billion for three years before rising to $7.5 billion in 2014. Still, its loan portfolio has been consistently climbing since 2011, moving from $3.4 billion to $5 billion at the end of last year.

slowdown in lending

C&WJCCU's loan book fell from $4.3 billion in 2013 to $4.2 billion last year. The decline in 2014 followed average annual loan growth of 33 per cent over the prior three years. This partly reflected a slowdown in overall lending across credit unions since 2011 - the rate of growth of the combined loan portfolio of all credit unions fell from 12-13 per cent four years ago to 6.3 per cent last year.

However, last year's decline for C&WJCCU also reflected its deepened position in financial investments, which moved from $981 million in 2013 to $1.45 billion last year, or from 13 per cent of assets to 19 per cent. The PEARL benchmark is a maximum of 10 per cent.

The increase in non-loan, earning assets reflected a $470-million increase in its holdings of certificates of deposit. This, coupled with the co-op's $711 million in GOJ benchmark notes, makes it the largest holder of government securities among credit unions.

ICD&A's member base opens up the possibility for the merged entity to shift its focus towards lending.

camilo.thame@gleanerjm.com