Business

Avia Collinder, Business Writer

Credit unions have been clamouring for the right to operate foreign exchange accounts, which would place them on par with deposit-taking institutions now regulated by the central bank, and give them entry into the lucrative foreign-currency deposit business they are now locked out of, with their commercial bank counterparts sitting on more than J$155 billion worth of these deposits.

The Bank of Jamaica (BOJ) says it is giving more than a listening ear to the concern of these 45 traditional lower to middle-income savings and loans institutions that now estimate the business bypassing them to be upwards of $6.6 billion per year.

"We could improve anywhere between 10 to 15 per cent of our current position within one year," Johnathan Brown, the president of the Jamaica Cooperative Credit Union League (JCCUL), told Wednesday Business this week. Total savings lodged with credit unions at December 31, 2009, stood at $44.1 billion, while the sector issued $36.2 billion in loans. A 15 per cent improvement in total deposits to the sector translates to $6.6 billion in added business in that segment alone, which would push savings to over $50 billion.

Returning residents are the primary clients being targeted by credit unions in their push for foreign current accounts parity.

General manager of the St Thomas Cooperative Credit Union, Hopeton Morrison, said he will continue to support the lobby against credit unions like the one he heads being prevented from accessing savings from the large Jamaican diaspora market, estimated at having some three million people.

Morrison said that the existing regulation was prejudicial to the unions, which are expected to compete with other financial institutions that do not suffer the same handicap.

"The BOJ regulation is a major threat to our continued existence," Morrison declared to Wednesday Business.

"Too much business is lost," he said.

"There are returning residents who are in the island for periods between three to six months of the year and need to create local accounts to manage their cash-flow needs."

Sentiments backed

The JCCUL head fully backs Morrison's sentiments and embraces them as being the position of the entire league. Some one million potential customers are estimated to be ready and waiting to place their foreign exchange with credit unions, its spokespersons suggested.

"We have substantial membership oversees, as well as members who have relatives there," said Morrison.

But Brown acknowledged that discussions were proceeding with the BOJ and the credit union leader said he was hopeful that a change would be made soon. Considerations to amend the regulations to bring credit unions under the supervision of the BOJ have been on the table for some time, although the credit unions have baulked at some of the proposed requirements which, they say, would perpetuate the disadvantages they face.

But recently, Finance minister Audley Shaw told Parliament that BOJ had been instructed to take a second look at plans to bring credit unions under its regulatory framework. "My instruction to the Bank of Jamaica, now under the new leadership, (is to) take another look at it, see how some of the areas can be softened and tailor-made to the peculiarities of the credit union movement," the minister said. Shaw said that following the central bank's review, Cabinet would also be asked to consider the recommendations.

The seven local commercial banks, as of March 31, 2010, had J$155.3 billion worth of foreign currency deposits with J$32.5 billion in foreign investments, the BOJ data indicate.

The BOJ, in the meantime, said the situation is under consideration. Melanie Lawes of the central bank's public relations department said this week the move to bring credit unions within the bank's oversight was imminent, and suggested that their forex accounts concern could be addressed with this change.

"These (credit unions) will shortly be brought within the regulatory ambit of the BOJ. The movement, through the league, has been informed that once the regulatory regime for credit unions is in place, the matter of permissible foreign currency dealings will be addressed."

Foreign currency licence

Currently, Section 22B(1) of the Bank of Jamaica Act restricts entities, including credit unions, from holding foreign assets, including foreign currency, unless this is done in accordance with the directions of the minister. All deposit-taking licensees, namely, commercial banks, merchant banks and building societies, are authorised to maintain foreign currency accounts.

Entities or persons other than licensed deposit-takers are required to apply for permission to hold foreign assets either by express authorisation or by ministerial exemption under section 22C of the Bank of Jamaica Act.

In 2009, although their asset base together remained smaller than that of the islands two largest banks, credit unions trumped commercial banks, merchant banks and money-lending institutions approved under the Financial Institutions Act in their degree asset growth rate, according to data from the Planning Institute of Jamaica.

There was an 11.8 per cent growth in their asset base to $56.5 billion.

However, the credit union sector took second place in asset growth behind the building societies, which improved assets by 15.2 per cent last year.

Avia.collinder@gleanerjm.com