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Updated BOJ data shows improved loan quality at credit unions

The Bank of Jamaica has updated the information on credit unions in its latest annual report, which now captures data from January to December 2022.

The central bank’s initial report had covered only 10 months of prudential data on the sector that’s in the process of transitioning to its regulatory oversight.

Using the new data provided by the credit unions, of which there are 25, the revised report notes improvements in the sector’s financial position, including a marginal decrease of nearly two per cent in non-performing loans which ticked down to $4.7 billion.

As a result, the ratio of NPLs to total loans fell to 4.3 per cent at year end, from 4.8 per cent at end-2021.

The 10-month data had indicated a worsening of NPLs to 5.1 per cent as at October 2022.

The central bank also reported that credit unions increased their provisions against bad debt during the year, which at $4.3 billion provided 92 per cent coverage of non-performing loans, up from around 88 per cent in 2021.

The new data affirms the position held by the Jamaica Co-operative Credit Union League, the umbrella body for the community banks, that the full-year data would have put the sector in a different and better light.

The BOJ said the credit union sector remained adequately capitalised for the review year, with a capital base that improved by nearly six per cent to $19.8 billion, driven mainly by retained earnings.

Notwithstanding, there was a marginal decline in the primary ratio to 12.3 per cent at end-2022 from 12.5 per cent at end-2021.

Similar to previous periods, asset growth was mainly funded by savings, which increased by over seven per cent to $125.6 billion, a notable deceleration when compared to increases of 10.2 per cent ($10.9 billion) and 10.4 per cent for years 2021 and 2020, respectively.

The BOJ’s takeover of the regulatory supervision of credit union is still pending the passage of two pieces of legislation that are expected to be voted on this year.

In the meantime, prudential regulation and oversight still rest with the Department of Co-operative and Friendly Societies, the central bank told the Financial Gleaner.

As to the banking licensees under its remit, otherwise referred to as deposit-taking institutions, they are to observe “a prudential limit of 20 per cent for non-performing loans when compared to the aggregate of the licensee’s capital base and their loan loss provisions,” BOJ said.

Among the current 11 licensed banking institutions, eight of which are commercial banks, non-performing portfolios were 2.5 per cent of gross loans as at December 2022, an improvement on the 2.9 per cent ratio estimated in the previous year.

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