Health Check: Credit Unions

Author(s): Central Bank Of Barbados

Created 15 Oct, 2021
Tags Financial Stability Report
Categories General Press Release
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Total assets of the credit union sector continued to grow during 2020, rising by 7.3 percent on the basis of steady growth in member savings. This asset growth was largely reflected in increased liquid assets in the form of cash and short-term deposits. Gross loans, which accounted for an estimated 65 percent of total assets, registered modest growth.

NPLs (non-performing loans) accounted for 13.1 percent of the total loans at the end of 2020, an increase of 3.5 percentage points. This upward movement was mostly driven by a further deterioration in the loan portfolio as the value of loans now being recorded as NPLs in the 3-6-month category increased. The large stock of NPLs in the 12-month-and-over category is mostly comprised of collateral-backed mortgages and real estate.

Credit unions continued to adapt to the IFRS 9 standard of provisioning for losses. For the year ended December 2020, the level of provisioning rose by 10.6 percent to reach approximately $55.1 million.

The provision to NPL ratio fell to 23.4 percent, given that a larger increase was seen in the absolute value of NPLs during the period.

Liquidity continued to improve during the review period, as evidenced by a lower loan-to-deposit ratio and higher share of liquid assets in total assets. In 2020, the deposit-to-loan ratio fell to 73.5 percent, down from 78.4 percent in 2019.

Profitability in the sector fell slightly, with credit unions recording a return on assets of 0.5 percent. Total income fell by $8.3 million, reflecting the impact of declining income from interest payments related to loans. This decline was expected given the moratoria programmes coupled with the increase in NPLs. Given the reduction in the interest income of 7 percent, the net income fell by 25.8 percent when compared to December 2019. Even though there was a reduction of interest and operating expenses, it was not enough to compensate for the reduced interest income.

The credit union sector’s capital rose by 3.3 percent as the provisioning requirements associated with IFRS 9 as well as impacts associated with COVID-19 slowed the pace of capital accumulation. However, the capital-to-assets ratio fell by 0.5 percentage points to reach 10.5 percent due to the continued expansion in the asset base.

Adapted from the 2020 Financial Stability Report.



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