September 2009 / Issue 6
Australia: Fundamentals Strong, Mergers Continue
The Australian financial system has held up better than systems in Europe and the United States during the global financial crisis, although mutuals themselves have experienced reduced profitability. Mergers are a continuing activity for the financial industry, with a slightly increased rate of mergers among credit unions.
The competition for retail deposits continues, and credit unions and building societies have been able to maintain very high levels of capital at an industry average of around 19%. As in many markets, consumer protection moved to the front burner as a new industry code of practice was implemented. Mutuals are working with policymakers to fine tune what Australia's deposit insurance system will look like once the existing guarantee expires. Legislative reforms on consumer credit, unfair contracts and bankruptcy are underway, and the prudential regulator (APRA) is reviewing regulation on executive remuneration and liquidity in the financial services sector.
Source: Abacus, www.abacus.org.au
Brazil: New Amendments to Law Strengthen Credit Union Governance In April of this year, the credit cooperative law was modified to strengthen governance provisions. Credit unions in Brazil have done well through the economic turmoil. They experienced 15% asset growth in the first half of 2009 and did not receive any government funds for bailout purposes.
Source: SICREDI, www.sicredi.com.br
Canada: Government Considering Legislation to Permit Federally Chartered Credit Unions
As a result of commitments made to G-20 leaders and increased interest from credit unions, Canada's federal government is considering legislation that would make available federal charters for interested credit unions. Currently, credit unions can only be chartered by a provincial government and must confine their operations to that province. A federal charter would enable a credit union to operate in more than one province. One difficult policy issue is the differences in deposit insurance levels among provinces and at the federal level.
Canada is converting to international financial reporting standards (IFRS) in 2011. Credit Union Central of Canada has been leading a project designed to aid credit unions with compliance.
Credit quality remains good at this time, but unemployment is rising and the number of bankruptcies has increased.
Source: Credit Union Central of Canada, www.cucentral.com
Ghana: Patience and Persistence Pay Off with Passage of Credit Union Law
After nine years in waiting, revisions to the legislative environment for credit unions were included in the Non-Bank Financial Institutions Bill that was passed last December 2008. Now the focus is on drafting regulations that recognize the differences among non-banking financial institutions, credit unions and banks.
Source: CUA Limited, www.cuaghana.com
Great Britain: Regulator to Realign Prudential Standards
As the culmination of a three-year process, the British government has published a legislative reform order that will update the 1979 Credit Unions Act and enable more opportunities for credit union growth. The Financial Services Authority, Great Britain's credit union regulator, is now set to realign prudential standards to ensure that the sector can capitalize on the legislative reforms in 2010.
In turbulent times, both economically and politically, British credit unions continue to grow strongly, attracting savings from many people disheartened with mainstream banks. However, the movement remains cautious, and financial standards are strict.
The British movement maintains strong political support from all sides, with the All Party Parliamentary Group on Credit Unions providing the focus. The sector is confident that this will translate into supportive policy regardless of which party controls government after the forthcoming election.
Source: ABCUL, www.abcul.org
Ireland: Government to Implement Risk-Based Capital Framework and Consumer Protection Rules
It is likely that the government will implement a new risk-based capital framework for Ireland's credit unions. There will be a five-year transition period to reach a 10% capital requirement. At the same time, consumer protection regulations are being developed in reaction to the global financial crisis.
Ireland's unemployment is projected to reach 16%, and delinquency has been increasing. Credit unions are trying to determine how premiums might be assessed for the new deposit insurance system and what role their privately owned saving protection scheme may serve to augment public deposit insurance.
Source: ILCU, www.creditunion.ie
Kenya: New Regulations and the First Independent Regulator Help SACCOS Evolve
Passed earlier this year, a separate law for Kenya's Savings and Credit Co-operatives (SACCOs) that calls for a new independent regulator is receiving positive support. Staff is being trained and regulations drafted in line with the new law. The resulting structure will also include provisions for a deposit guarantee fund to protect member savings in case the society goes under liquidation.
Although the new regulatory and legislative framework has been adopted, Kenya is also considering passage of agency-banking legislation similar to what has been adopted in Brazil, whereby non-financial institutions act as bank agents to accept deposits and loan payments. However, rather than allowing SACCOs to establish agency networks, pending legislation would have SACCOs serve as bank agents. The SACCO movement and the Ministry of Co-operative Development and Marketing are seeking modifications to the legislation so that SACCOs would not act as agents for banks.
KUSCCO, the credit union trade association, is preparing SACCOs to comply with the new law, which is quite a challenge given their low
levels of ICT and staff capacity. The accounting system and charts must
equally be standardized. WOCCU is coordinating a visit of the KUSCCO
task force team to learn from the experiences of Jamaican and
Source: KUSCCO, www.kuscco.com
Korea: Despite Delinquency Spike, Credit Unions Doing Better Than Banks
Initially, Korean credit unions had been less affected by the global financial crisis than other types of financial institutions. In 2008, profitability and asset quality remained strong as they focused on mobilizing deposits and extending loans.
However, as the global crisis spilled into the Korean economy, credit unions' asset quality has deteriorated, in part because they serve many low-income members who have greater difficulty repaying loans when their limited resources are affected. As of July 31, 2009, the average credit union delinquency rate stood at 8.6%, up 0.5% from seven months earlier.
Source: NACUFOK, www.cu.co.kr
Poland: Banks Introduce Credit Union Law
The banker lobby has introduced a law in Poland that, if passed, would require the largest credit unions to become banks. During the first three months of the year, consumer confidence in banks deteriorated. As a result, Polish credit union assets grew twice as fast as their commercial bank counterparts. And with growing unemployment, economists forecast weaker repayment capacity.
Source: NACSCU, www.skok.pl
South Africa: Regulations and Draft Rules for Cooperative Banks
South Africa's National Treasury has recently issued regulations governing its cooperative banks. These regulations were promulgated for the Co-operative Banks Act, which aims at promoting access to financial services for previously excluded South Africans. The Act also establishes a regulatory framework and a development institution for cooperative banks. It requires that existing financial cooperatives meet a set of criteria to register as cooperative banks. The criteria includes having at least 200 members, holding at least R1 million (US$132,000) in deposits, and being currently exempt from the Banks Act.
The new regulations provide the framework for cooperative banks and prescribe the types of investments that cooperative banks are allowed to invest in on behalf of their members. A draft of the combined rules have also been published for public comment.
To view the regulations and draft rules for cooperative banks, visit: www.treasury.gov.za/public%20comments/default.aspx
Source: SACCOL, www.saccol.org.za
United States: Is the Light at the End of the Tunnel an Oncoming Train?
In recent months, capital ratios and the outlook for U.S. credit unions have improved. Delinquency has increased from .95% a year ago to 1.5%, but capital has begun to increase again and stands at 9.8% for all credit unions. Savings continue to outpace lending as members seek to protect themselves from potential unemployment, which now stands at 9.7%—the highest rate in 26 years. The Obama Administration has proposed the establishment of a consumer financial protection agency. Credit union groups are evaluating the proposal and its potential impact.
Corporate credit unions—institutions that serve the investment and liquidity needs of so-called "natural person" credit unions—continue to work through their exposures to mortgage-related securities and the troubles at U.S. Central and WesCorp corporate credit unions. In May, President Obama signed the Helping Families Save Their Homes Act of 2009, which allowed U.S. credit unions to spread deposit insurance expenses related to projected corporate credit union losses over at least seven years. This change will help preserve credit union capital, because the previous law would have required credit unions to pay all of these costs—estimated to be approximately 1% of each federally-insured credit union's insured deposit account balances—over only one year.
The Helping Families Save Their Homes Act also extended the US$250,000 per-member, per-account deposit insurance ceiling to December 31, 2013. This is an extension of a temporary deposit insurance ceiling increase (from US$100,000 to US$250,000 per member, per account) that had been set to expire on December 31, 2009.
In addition, the National Credit Union Administration (NCUA), the credit union regulator, has concluded a so-called "Advance Notice of Proposed Rulemaking" public comment period regarding restructuring the U.S. corporate credit union system. Credit Union National Association (CUNA), among others, has suggested that the new regulations preserve the corporates' roles as providers of liquidity, payments and settlement services, but have the corporates transition from directly investing in longer-term securities to serving as broker-dealers of such investments. Industry analysts anticipate that the NCUA will release a proposed version of these new regulations for public comment sometime this fall.
For more information about the NCUA Corporate Stabilization Program, visit:
Source: CUNA, www.cuna.coop
World News: More Capital Will Be Needed in the Future
The global financial crisis may lead to increased capital requirements for all institutions. Such requirements will probably include a leverage ratio (capital to total assets) as an added component of Basel II. The Basel Committee on Banking Supervision has indicated that these proposals will not be introduced until financial institutions can return to a level of normalcy.
For additional information, visit: www.bis.org/press/p090312.htm
World News: WOCCU Research Yields Array of Capital Sources
WOCCU recently presented Alternative Sources of Capital for Credit Unions: International Examples to the Regulators' Roundtable, July 30-31, in Barcelona, Spain. The study explores a variety of capital sources besides retained earnings that credit unions around the world are using while still retaining their cooperative structures. To download, visit: Alternative Sources of Capital for Credit Unions
Source: WOCCU, www.woccu.org
World News: Webinar: Preparing for the Transition to International Financial Report Standards
On October 8, 2009, WOCCU hosted a free webinar for members and regulators to learn about IFRS and what it means for credit unions. Presenters included IFRS expert Holly Skaife from the University of Wisconsin; Eleonora Zgonjanin (Macedonia) and Gary Rogers (Canada), who shared what they had done at national levels to prepare their credit unions for the transition. To sign up for this webinar, visit: IFRS for Credit Unions Webinar