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Credit unions give contrasting business outlook

Published:Wednesday | July 28, 2010 | 12:00 AM
Basil Naar, general manager of Churches Co-operative Credit Union Limited, is looking to reduce fees to generate business. - File

Avia Collinder, Business Writer

As financial institutions continue to be challenged by deflated market conditions, a top credit union executive is predicting a turnaround of sorts for the sector, but his outlook is not necessarily in sync with other colleagues.

Basil Naar, the general manager of Churches Cooperative Credit Union (CCCU), says the movement is growing but will have to look at strategies to keep enticing savers.

He believes new business can be leveraged by adjusting fees.

"We are considering cuts," Naar told Wednesday Business this week.

The CCCU head said fees at his institution were "at the lower end" but felt that slashing them further might help to boost business.

"The JDX has not affected the credit union's fee structure as there have been no increases of these," said Naar.

This year has not started off badly for the credit union movement, which Naar said has seen an 11 per cent growth in savings and five per cent more membership since January.

Loan manager at St Thomas Cooperative Credit Union Limited, Claudia Thompson-Roache, said membership there has increased by 365 since the start of this year and agreed that credit union service fees tend to be lower than those which obtain at other types of financial institutions.

But, for her,there are so far no prominent signs that Jamaicans are more willing to give community credit unions their business.

"Any increase in savings and loans at best will be marginal at this time," she told Wednesday Business.

"Most credit unions have cautiously moved up their service fees after the JDX event so as not to jeopardise the core services - savings and loans - in any way."

The JDX, Jamaica Debt Exchange, swapped high-priced government bonds for lower tenors, sparking a drop in interest rates.

Thompson-Roache said most commercial banks require more than J$2,000 as minimum balance, whereas credit unions already have a more favourable minimum share capital criterion, ranging from J$500 to J$1,500.

Strategically reposition

"There might not be any immediate gains from this group based on the fact that they can hardly afford to maintain the minimum balances at the commercial banks," she said.

Still, Thompson-Roache wants credit unions to step up their marketing activities, just in case the market shifts.

"Credit unions will have to strategically reposition their business model to capitalise on any fallout in the commercial banking arena. The commercial bank's customers are quite sophisticated and as such more tailored services are demanded," she said.

Churches, the third-largest credit union in a field of dozens, is getting more aggressive about growth, having seena falloff in profits for 2009 - reflected in a net surplus of J$117 million compared toJ$125.6 million in 2008.

This was despite interest income increasing 13 per cent to J$518 million from J$457 million in 2008, an eight per cent loans growth to J$2.76 billion and and 15.5 per cent more deposits, which closed out 2009 at J$1.47 billion.

The 39-year-old CCCU is valued J$3.87 billion by assets and has a capital base of J$680 million. It has six branches and a membership of 125,500.

On the back of the recovery being witnessed so far in 2010, the CCCU general manager is predicting that, overall, the credit union movement could see double-digit growth by the end of the current financial year.

Credit unions' membership, he said, should exceedone million by the end of the year.

"Although there has been an erosion in the residual income of most savers, saving growth should hold steady at 11-15 per cent," he added, pointing to a trend which suggests that more family members of existing credit union clients have been doing business with credit unions.