SBP: Many CU's Now Giving 0% to Savers

Damian85 maybe you would like to address the following:

Credit Union balance sheets cannot be consolidated. This means one credit union cannot share its reserves with another nor can it, within granting a loan, share its liquidity. 1+1=2 doesn’t work because the “+” sign is missing. All this talk of large “large reserves” is hiding a fundamental flaw that astute commentators have pointed out requires urgent action. Without a way to create the “+” sign quickly some will run out of cash. And the “+” is also needed to rescue what will be a horrific bad debts and investment losses problem = increased risks of illiquidity and insolvency for many. Some it appears have run out of liquidity lines as they have run out of reliable collateral. US, Canadian and Australian credit unions solved for the equation decades ago.

Last year arrears jumped by 22% to 7.22% of the book excluding another 3.8% of refinanced loans. Total loan impairments amounted to 11%. And these are global figures with individual experiences varying considerably. Factor in continuing investment losses which amounted to about €345m last year and the scale of the problem facing credit unions begins to emerge.

How can credit unions share their liquidity and reserves? How can they participate as an eligible counterparty and pledge eligible collateral under ECB money market operations?

Is it reasonable if you know you cannot pay a dividend to savers at year end, not to tell your customers until the AGM after year end?


Kaplan
 
Bad debts are worrying but credit unions have been limited in their lending activity in recent years. Yes, some are suffering pain now but many are doing well. There has been an explosion in lending growth in the last decade, but credit unions have not experienced this same growth due to inherent restrictions and an increased competitive marketplace. This may be a blessing as this mortgage lending and consumption binge is now effecting the banking sector in far more adverse ways. Bad debts in a recession are inevitable, but this has been largely mitigated by many credit unions through a re-enforcement of prudent lending standards.

As regards liquidity, the movement won't allow a credit union to ultimately fail. The domino effect would be far too dangerous as the public doesn't perceive the movement as being independent from one another. The Savings Protection Fund (yes, it has been a disaster in the past!) can be used to stabilise a credit union in times as such. Short term liquidity problems can be solved.

Yes no dividend is disappointing for some. However, savers who use credit unions for their dividend payment have left within the last decade to seek more competitive rates. The majority of savers and also borrowers. They use the credit union for their lending facilities also. The majority of traditional, loyal members realise that a credit union is not profit driven.

The proposed changes and criticisms aimed at the movement are not represetative of the whole movement and are based on past experience of foreign credit union movements, which are at a FAR more developed stage, a lot more complex, and have a different market to serve.
 
Damian85: Nice credit unionist PR but you really do need to deal with reality. The core business of savings and loans is operating at a loss – high yielding risky investment income hid operating losses – costs are out of line at 75%+ cost income ratio – net margins have collapsed and are still heading south – asset impairment is 1.1bn at 7% and heading to 10% by year end. 25% will run at a loss for 2009 and in the middle of all this is a tiny ILCU fund that represents less than .73% of covered liabilities (initial target 1.5%) where requests for assistance are reported as having been declined by the ILCU – the fund is 64% exposed to marketable and other variable value securities and incurred declared losses of €5.7m last year.

Less than 19% of credit unions are members of the ICB and repayment capacity lending non existent.

Regulatory investigations have uncovered bad debt manipulation, IT system interference and in all cases where collateral for loans was checked it was found to be deficient. The regulator has said no more refinancing beyond the original term. The Minister has demanded a arrears collection code.

Over half have less then a safe minimum of liquidity with nearly a fifth having less than half again.

Last year three investments alone incurred losses of €137m and still rising on assets of €325m. Another €22m was incurred in January.

Over to you to respond with fact based analysis preferably dealing with the top 100 who control over 80% of all assets - the others matter little

Kaplan

ps. Damian85 don't forget to deal with the PM
 
Good stuff Kaplan,

I must admit you have your facts to compliment your argument, and I will admit you have successfully challenged the majority of my points and changed a lot of my own viewpoints. Well done

You might post or PM me the sources to your figures if you get a chance. I would be very interested in dwelving further into this information.

P.S. PM addressed
 
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