Educom introduces fees as interest spreads shrink
EduCom Co-operative Credit Union Limited saw its net surplus jump by nearly 30 per cent in 2017, which CEO Elvis King says was underpinned by an increase in its loan portfolio and non-interest income as it pursued an aggressive diversification strategy.
EduCom disclosed last week that it realised a surplus for the year of $115.46 million, compared to $89.04 million the previous year. King says the credit union sought to defray some of the costs that it would previously absorb by adding non-interest income "using a transactional-based approach.'
As a result, the financial institution took in non-interest income of $135.85 million from loan processing, ATM and management fees on schemes loans, compared to $70.9 million it earned the previous year.
While he did not disclose all the fees that have been increased or introduced, King told the Financial Gleaner: "At EduCom, we are cognisant of the fact that fees are a necessary part of our revenue stream (as is common throughout the financial sector). However, we have taken a more member-centred approach by opting to charge fees only on a transactional basis."
He said that "when compared to the market, we are also confident that we have kept these fees much lower than those in the industry so as to ensure that our members are getting the deserved value from their credit union."
Treasurer Hilton Blenman, writing in the company's annual report for 2017, said the credit union has been experiencing "fierce competitive pressure by other players in the financial market for loans", adding that the situation was "further exacerbated by low to moderate loan interest rates because of competition from other big players in the market, such as commercial banks".
ADOPTION OF NEW PRODUCTS
He added that "These entities have adopted credit union crafted products, such as unsecured loans tied to salary deductions being paid directly by their employers to these entities."
Blenman said that given the volatility in loan interest rates in the market and the fact that the credit union is very sensitive to downward movements in loan interest rates, the board gradually implemented the strategy to diversify EduCom's income stream.
Net total loans for Educom at year end 2017 increased by approximately $1.95 billion, closing at $6.12 billion, due mainly to Educom's merger with St Catherine Co-operative Credit Union, which added 36,000 persons to its membership.
Total gross interest income from members' loans and investments amounted to $886.49 million compared to $632.66 million in 2016. EduCom indicated that income from investments in financial markets grew by $27.35 million or 55 per cent as a result of the merger.
The credit union paid to its members $161.2 million in interest expense for voluntary shares, deferred shares and deposits held during the period under review, compared to $121.31 million the previous year.
Members' savings at year-end increased to $6.67 billion, compared to the previous year of $4.39 billion, representing a 50 per cent growth over the period.
The credit union indicated that operating expenses were $669.78 million, compared to $464.83 million the previous year. This reflected a 44.1 per cent increase in total operating expenses or $205 million.
EduCom said contributing factors to the increase were the additional personnel and administration costs from a bigger operation, with four additional branches and the non-recurrent merger-related costs.
With headquarters at Oxford Terrace in Kingston, Educom also has offices in Spanish Town, Old Harbour, Linstead, Mandeville, Portmore, Montego Bay, UWI Mona, and the University of Technology Jamaica
The credit union, which started in 1954 serving staff of the University of the West Indies, merged with the St Catherine Co-operative Credit Union in January 2017. In 2015, it also merged with the AAMM Credit Union which served members of the teaching profession. Current membership of the combined eitities is 69,000.
EduCom said it would continue a revolving loan agreement with the Credit Union Fund Management Company in order to meet the high demand for loans.