What are the measures of a good Credit Union ?

[MrEarl]

....I just think it would be good to be invested locally in a CU also for a variety of reasons, but because CU's are small and local I was just wondering whether it was easy enough to compare them, in terms of services, financial health, rates etc. I'm still surprised there isn't somewhere that does that - even the ILCU perhaps for its members.

Like you, I would love to have access to a service where a simple comparison of CUs was possible.

However, putting aside what would be nice for information purposes, do keep in mind that you cannot join any CU, you must be part of their "common bond" which essentially means you can only join a CU where you live or work etc.

 

[24601]

I just think it would be good to be invested locally in a CU also for a variety of reasons, but because CU's are small and local I was just wondering whether it was easy enough to compare them, in terms of services, financial health, rates etc. I'm still surprised there isn't somewhere that does that - even the ILCU perhaps for its members.

The ILCU does do something like this for its member credit unions in that quarterly prudential returns are analysed at a national level as well as by asset group. This report, called PEARLS, gives an indication of the health of each individual credit union versus the overall national result which can be compared against internationally recognised goals for each indicator. These reports provide internal management information for CU's though, and not widely circulated.

In terms of services etc. the Central Bank would have this information because CU's have to detail what services they offer as part of their annual returns - this information isn't published as far as I know. A rates comparison would be impossible for loan products as each Board sets this and they can change regularly enough especially with the diversification of loan products offered. However, the Central Bank has to approve loan interest rebates and dividends on shares prior to general meetings so this information is available to them but not published. I'd imagine there's quite a few CUs that would object to having a lot of this info published, but many do upload their Annual Reports to their websites.

On the more general point, the key indicators of viability for any credit union are capital adequacy and the capacity for surplus generation. Nearly all credit unions meet the 10% regulatory reserve requirement comfortably, and whilst this one-size-fits-all reserve requirement is bizarre, it does provide the sector with serious breathing space to get its house in order. In fact overall reserves are far in excess of this 10% - something like 15% nationally I think I read. They are extremely inefficient at the moment though with many running operational losses as loan interest income no longer covers the day to day operations. Nearly all credit unions are overdependent on investment income which is close to nil at the minute and unexpected to change. There'll be a lot of them running deficits over the next few years. In saying that, I don't think things are as bad as they may appear to be. If they could make some evolutionary changes to the business model and get on board with initiatives that pool resources centrally for better use they could turn things around. The cost base for the movement is crazy.

 

[MrEarl]

The ILCU does do something like this for its member credit unions in that quarterly prudential returns are analysed at a national level as well as by asset group. This report, called PEARLS,

...... In saying that, I don't think things are as bad as they may appear to be. If they could make some evolutionary changes to the business model and get on board with initiatives that pool resources centrally for better use they could turn things around. The cost base for the movement is crazy.

I think you are correct, about the quarterly PEARLS report only being circulated for internal purposes. There'd be little appetite in most credit unions, for publishing such information for fear of public criticism or nervous members withdrawing their funds, potential borrowers trying to use information from the report to negotiate a better loan deal etc.

I agree with you about evolutionary changes to the business model and the cost of running the movement, but those benefiting without having to work very hard would hardly encourage change, would they ?

 

[24601]

I agree with you about evolutionary changes to the business model and the cost of running the movement, but those benefiting without having to work very hard would hardly encourage change, would they ?

Oh yeah, it's the same with mergers in all industries I suppose. There's always going to be resistance from staff and other vested interests. In particular, there'll be layers of middle management type roles in credit unions that may be involved in progressing mergers but at the same time would be the first to go in the event of rationalisation in the new entity. There'd be no need for 2 CEO's, 2 risk officers, 2 compliance officers and multiple assistant managers. Also, due to the heavy emphasis on face to face service it's probably fair to say that many credit unions are overstaffed at teller level. That's before you even consider auditors, IT providers and other external consultants that are making a fortune from credit unions because of their atomised structure. If they were even able to get their act together in terms of co-sourcing a lot of the back office stuff they'd be able to reduce their cost base considerably and refocus their efforts on growing their loan books.

 

[MrEarl]

....If they were even able to get their act together in terms of co-sourcing a lot of the back office stuff they'd be able to reduce their cost base considerably and refocus their efforts on growing their loan books.

The back office stuff is one area I would have thought the ILCU should be able to help by providing central functions, but for some reason... it doesn't seem to have crossed their minds

 

[24601]

The back office stuff is one area I would have thought the ILCU should be able to help by providing central functions, but for some reason... it doesn't seem to have crossed their minds

To be fair to them it is something they offer but it all came way too late. Their Internal Audit Function, Compliance Centre and Risk Advisory Service were all set up years after the 2012 Act was passed into law. Any progressive credit union had a Compliance Officer, Risk Officer and IAF around commencement in 2013 so the ILCU offering was too little too late. They'd argue, probably with cause, that their delay is the credit unions' fault rather than the ILCU's as they can only provide services that credit unions demand and are willing to fund - bit of a vicious circle as so many CU's don't trust the League so they can't win. It's primarily a governance issue though; there's lots of excellent staff in the ILCU but it's run by a volunteer board that does more harm than good.