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by Shawn Cumberbatch

Barbados’ second largest credit union is moving to reallocate millions of dollars on its books to avoid breaking the law and a showdown with regulators.

Barbados TODAY confirmed that when members of the City of Bridgetown Cooperative Credit Union Limited assemble at the Lloyd Erskine Sandiford Centre for its annual general meeting tomorrow, they will be asked to approve the transfer of more than $8.3 million from two “special funds” to the “undivided surplus” category.

Details of this shift came simultaneously with news that the near 30 year old cooperative had “commendable” results for the financial year ended March 31, 2013, including a $4.6 million surplus, $26.6 million increase in assets, a 6.3 per cent increase in savings.

The monies being reallocated by COB following what was said to be a “careful analysis” by its board of directors were $3.7 million from the Dividend Stabilisation Fund and $4.5 million from the Real Estate Development Fund.

While the first fund was “established to ensure that members would receive a stable dividend yield over the long term”, the other one was set up to “facilitate the acquisition and development of real estate properties, for the benefit of the members”.

An explanation for the decision to shift the money was given in the COB annual report released ahead of tomorrow’s meeting.

“These funds were set up to stabilise the dividend payments over the long term as well as to fund the property development arm of our subsidiary COB FSI,” the board said. “After careful analysis, the board has proposed by resolution to transfer the balances on these funds to undivided surplus.”

The recommendation was made on three main grounds, which were: * The regulatory authority does not include these funds as capital. This is notwithstanding the fact that they meet the requirement for capital under generally accepted accounting policies. * Under section 34 of the Co-operative Societies Act the payment of dividends are restricted to surpluses earned in the year to which the proposed dividends relate. Consequently, the payment of dividends from the established dividends stabilisation funds would contravene the law. * Our subsidiary COB FSI has completed the build out of the real estate project and has commenced the sale of lots. The money being reallocated by COB was just a portion of its overall $36.9 million capital position, the importance of which was emphasised by the credit union. Under the heading Capital Management, the organisation’s board said “the effective use of capital is critical to the sustained growth as well as the safety and soundness of the organisation”.

“The focus on dynamic capital management which supports our day to day operations, allows us to take advantage of growth opportunities aligned with our strategy, cushions our risk exposure and ensures that we are able to meet regulatory demands and changes, while providing our members with solid returns on their investments,” the board said.

“During the year, the Credit Union continued to add to its strong capital position. This was attained while meeting our targeted dividend yield. At year end the capital net of dividends stood at $36.9 million representing a capital ratio of 10.3 per cent marginally below the targeted rate of 10.5 per cent but consistent with the 10.3 per cent attained at the end of the previous year,” it added.

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