New credit union rules will limit loans, insure deposits

The Central Bank announced Tuesday that new rules governing the operations of credit unions in Trinidad and Tobago will put greater control over the financial operations of these institutions.

The Bank made the disclosure at public consultation where it presented a 67-page document outlining its proposed policy for the Credit Union Act. The proposal has come as a result of a cabinet request nearly four years ago to have the central bank supervise all credit union activities.

The bank said it took that long because it was necessary to hold exhaustive consultations with stakeholders before arriving at a final position.

Central Bank Deputy Governor Joan John said the proposed legislation would encourage credit unions to show greater prudence in the management of loans and provide appropriate conditions for the payment of dividends.

"It will ensure the provision of active capital, it will provide guidelines for the investment activities of credit unions, it will ensure more effective cooperate governance, it will enhance the confidence of members and the public in the sector, it will also enhance potential management practices and improve risk management," John said, adding that it will also provide "readily available and reliable data for effective monitoring and research."

John said up to last year, credit unions controlled about $8.5 billion in assets. She noted that of the 390 credit unions listed in 2000, only 113 are still in operation and the top 10 control 74 per cent of the industry's assets. (see credit unions list)

"Many credit unions have now become significant investors in the financial market, bringing them face to face with all the risk and potential pitfalls inherent in this type of activity and indeed raising the bar on the level of expertise and experience required to successfully manage these risks," John said.

"The intent of this document, which is to amend the Credit Union Act, is to ensure that the credit union sector operates from a position of greater strength, safety and soundness," she explained.

Wendy Ho Sing, deputy Inspector of Financial Institutions at the Central Bank, presented the policy proposal document to stakeholders. She said one important change is that credit unions will be limited to exactly how much money they can borrow and lend.

It will also ensure that credit unions have a mandatory insurance protection fund, similar to deposit insurance. She said the Central Bank has formed a separate unit to monitor credit unions.

Some stakeholders in the sector are not happy what the changes, with some suggesting that the proposals could kill credit unions.

Hyder Ali, a former commissioner for Co-operative Development, told the Trinidad Express one problem is that the proposals treat large and small credit unions as equals.

"This policy is one size fits all. But the small credit unions are not the ones that failed the people," Ali said, a reference to the collapse of the Hindu Credit Union.

He also said the document has failed to consider the "unique" nature of credit unions, noting that the central bank is treating these institutions like banks and insurance companies.

Ansley Pierre, president of the Institute of Chartered Accountants of Trinidad and Tobago (ICATT), observed that the increased cost for auditing services would severely weaken the financial position of small credit unions.

Brian Moore, president of the Cooperative Credit Union League of Trinidad and Tobago was more graphic in his observations. "The original document was daggers aimed at the heart of the credit union industry... but this present position is more like pocket knives aimed at good credit union operations," he said.