Glen Francis, general manager for the Jamaica Cooperative Credit Union League. - File photos

Credit unions - financial institutions which traditionally service largely low to middle-income savers and borrowers - are reporting a slight increase in loan delinquencies, but says the bad loan rate is nothing to be alarmed over.

The movement has adopted stringent new measures, including tightening consumer credit and focusing, instead, on business loans in an effort to contain deteriorating loan portfolios.

Sector sound

However, with deposits in credit union accounts on the rise, mirroring commercial banks, sector leaders say the credit union movement is sound, despite the economic hardships being borne by many in its client base.

"We have observed from the middle of last year a slight inching up, one or two points above the normal rate, but nothing to be alarmed about at this stage," Glen Francis, general manager for the Jamaica Co-operative Credit Union League (JCCUL), said of growing credit union loan defaults.

At the end of 2008, the default rate on loans for the industry stood at five per cent, up from 4.5 per cent in 2007.

"Our target is to keep it at five per cent," Francis told Wed-nesday Business this week.

Tightening credit

Tightening consumer credit appears to be the central plank in the credit unions' strategy to cauterise the growing bad loans trend.

"We have de-emphasised con-sumer loans, especially for motor vehicles, and are now promoting more business loans. If someone comes in with a good business idea, then we will offer guidance and are keener on issuing this type of loan."

In addition to putting the brakes on unproductive loans and focusing on financing business ventures, Francis said credit unions are also doing closer monitoring of members when loan payments become overdue and are encouraging borrowers to restruc-ture their loan payments.

Churches Cooperative Credit Union, which up to December 2008 managed some $3.7 billion of the industry's more than $50 billion assets, supports the league's position on industry bad loans.

"We had expected to see a rise in past-due loans, so it does not present a problem as the ratio of past-due loans to total loan portfolio is within a range we can live with," said Basil Naar, general manager at Churches.

Rise in assets, deposits

Basil Naar, general manager, Churches Cooperative.

There are 46 credit unions across the island boasting membership of 950,000.

Last year, the industry grew its assets by 14 per cent to $50.36 billion, moving from $44.22 billion at the end of 2007.

Deposits also rose at the end of 2008 to $39.51 billion, a 15 per cent jump, compared to $34.38 billion the previous year.

The top players include COK, with $7.3 billion; Jamaica Teachers' Association, which manages asset of $5.2 billion; Churches, with its $3.7 billion; and C&W Jamaica, with $2.9 billion.

"Credit unions are in pretty good shape and tend to do well in times of difficulty," according to Francis.

Flat growth expected

With credit unions required to keep a capital adequacy ratio of eight per cent of total asset, Francis said all credit unions are liquid at the moment.

"But we are going forward very cautiously because of the state of the economy and the level of lay-off taking place," he said.

No robust growth is expected for the current year, given the economic conditions and, in fact, Francis has projected assets to grow by 10 per cent in 2009, three per cent less than it did last year.

sabrina.gordon@gleanerjm.com