Credit unions tout "trustworthiness" after bigger bounce-back than finance companies

Wednesday 19th October 2011

New Zealand’s 21 credit unions are touting their relative trustworthiness in a bid to drum up new members in the wake of the sector’s recovery from the global financial crisis.

Credit unions are a minnow in the financial sector, with $480 million of assets in 2010, just 4.4 percent of the $11 billion overseen by finance companies, according to KPMG figures.

Still, the credit unions posted a combined 470 percent increase in profits in 2010, after an 85 percent decline in the previous year, while finance company profits rose 215 percent last year following a 225 percent slump in 2009.

Member-owned financial cooperatives such as credit unions are becoming more popular as consumers, jaded in the wake of finance company losses, seek “trustworthy” vehicles for their savings, according to Henry Lynch, chief executive of the NZ Association of Credit Unions.

He claims there is a global increase in the appetite for “cooperative values” since the GFC. His statement comes before ‘International Credit Union Day’ tomorrow.

Worldwide, membership of credit unions climbed by 4 million people in 2010, according to World Council of Credit Unions data. That’s below the 8 million increase recorded in 2008, before the financial crisis but an improvement on 2009’s 2 million gain.

Local credit unions added 5,000 members in the three months ended June30, taking the total to 176,000, according to NZ Association of Credit Union data.

“If they are seeing an upswing, it will be because they have not been tangled up in global financial woes as much as banks,” said David Tripe, senior lecturer in banking studies at Massey University. Still, credit unions are no less averse to risk than other financial service providers and must “avoid risk by ensuring good governance practices and putting in place appropriate protections for investors.”

The sector hasn’t totally escaped fallout from the GFC. In Ireland, credit unions are in the sights of that nation’s regulator as part of efforts to stabilise an increasingly insolvent savings institutions sector.

Up to 95 Irish credit unions may be forced to merge by the Department of Finance if, as expected, they failed financial stress tests, Ireland’s Sunday Business Post newspaper reported this month.

A special commission on credit unions was established and reported that 18-to-20 percent of credit union loans were in arrears, pointing to losses of around €1 billion.

The Post cited Ralph Swoboda, former chief of the US Credit Union National Association, as saying the Irish credit union crisis was due to under-regulation and bad loans.

KPMG’s 2010 survey results indicated that asset impairment was a significant factor for savings institutions in New Zealand, and was largely responsible for the difference between institutions reporting profits and those enduring losses.

BusinessDesk.co.nz

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