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JCCUL pushes back on central bank loan-quality data

Credit unions saw a dip in the quality of their loans last year, new central bank data shows, resulting in a non-performing portfolio above five per cent of total loans.

But the Jamaica Co-operative Credit Union League, JCCUL, is insisting that the picture is better than the Bank of Jamaica’s newly released annual report describes.

For the Jamaican banking sector, consisting of eight commercial banks, two building societies or mortgage banks and a merchant bank, the ratio of non-performing loans or NPLs was estimated at 2.5 per cent last year, an improvement on the 2.9 per cent outturn the previous year.

But the central bank’s analysis showed that within the sphere of credit unions, which are sometimes described as community banks, NPLs worsened from 4.8 per cent to 5.1 per cent.

It stemmed from a 13 per cent spike in the value of non-performing debt to $5.4 billion, the central bank reported.

The sector was constrained “in the context of low loan demand due to competitive pressures in the market as well as an uptick in non-performing loans”, the BOJ said.

The basis of the assessment, however, related to just 10 months of data up to October 2022.

The JCCUL, which functioned as the monitoring umbrella agency for the credit unions prior to the ongoing reform programme to place them under the BOJ’s supervision, says the full-year data, January to December, shows a different and better picture.

“The 2022 BOJ Annual Report states that there was an ‘uptick in non-performing loans’ for credit unions, an increase of 13 per cent to $5.4 billion. However, the report appears to be referencing data supplied as at October 2022 and not December 2022. In sections of the report, there is also the notation that 2021 data may have been revised, given resubmission of prudential information,” said Phueona Reynolds, monitoring and risk assessment manager in the JCCUL’s Stabilisation Unit.

“The term non-performing loans is very specific and refers to non-performing loans three months and over. Using this description and reviewing the data collated by the league, it shows that, as of December 31, 2022, loans delinquent in this category actually declined by nine per cent,” Reynolds said.

Based on the JCCUL’s full-year assessment, non-performing loans in 2022 amounted to $4.7 billion, which was down from $5.2 billion in 2021.

“This is based on the audited financials for 2021 and unaudited 2022,” Reynolds said.

Additionally, she said that JCCUL’s analysis put the sector’s ratio of NPLs to gross loans at 4.38 per cent last year.

As to the improved values, Reynolds attributed the performance to the post-COVID rebound in some industries such as tourism, entertainment and transportation.

“While we do not have sector information for credit unions’ loans, we recognise that the non-performing loans for CUs in the tourism belt declined by 22 per cent in 2022. At least one credit union in the resilience corridor recorded a 43 per cent improvement in NPLs,” the risk assessment manager said.

The central bank is taking over regulatory responsibility for the credit union sector and its current 25 players, a years-long ongoing process that requires legislative changes to complete.

With the transition project still under way, there is no indication yet of an NPL limit for credit unions. However, globally, a ratio below five per cent is seen as preferable.

In its report on the sector as at October, the BOJ said credit unions recorded an 11 per cent decline in surplus to $1.8 billion, as the firms struggled to grow loans, while total assets grew by nearly seven per cent to $160.5 billion.

The asset growth mainly resulted from a five per cent expansion in loans to $102.3 billion.

“Credit unions, being member-based organisations, will continue to communicate with their members and together find appropriate measures to assist them in their recovery efforts,” said Reynolds.

“It is noteworthy, however, that credit unions continue to make adequate provisions for both past due loans and NPLs.”

The Bank of Jamaica notes that those provisions increased from nearly 85 per cent to 90 per cent.

“Of note, the removal of government pandemic-related restriction,s and the resultant return of vibrancy to the tourism, entertainment and transportation sectors, had a positive impact on credit unions whose members were employed in those sectors,” the central bank reported.

But it also noted that loans as a share of total assets had dipped marginally by 80 basis points to 63.7 per cent.

Still, the sector was said to be adequately capitalised, with a capital base that grew nearly eight per cent to $19.7 billion, driven mainly by earnings retention.

The BOJ said it continues preparation for formal assumption of oversight of credit unions, which requires legislative changes being pursued though the Cooperative Societies (Amendment) Bill to facilitate licensing and supervision, and the Credit Unions (Special Provisions) Bill.

The process is at an advanced stage, the BOJ said in its report, “and the tabling of the two companion pieces of legislation in Parliament is slated for 2023”.

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