Low bank interest rates a boon for credit unions
Falling interest rates on savings at the commercial banks are a boon to local credit unions, which are experiencing a rise in membership and financial intake.
At the same time, at least one credit union is seeking to take advantage of the reluctance by the banks to lend to some sectors such as construction.
The latest financial stability report, which covered the October 2015 to September 2016 period, showed that the credit union movement had registered a 3.4 per cent increase in membership by the end of September 2016, to reach approximately 183,000.
Prior to April 2015, when the Central Bank decided to deregulate the market, commercial bank depositors were guaranteed a minimum interest rate of 2.5 per cent per annum. The banks have since lowered the interest rates on savings to as low of 0.01 per cent.
Chief Executive Officer of the City of Bridgetown Co-operative Credit Union (COB) Steve Belle told Barbados TODAY this had created an opportunity for the his institution.
“What has happened now some persons have moved their monies from the commercial banking system into the credit union movement, and we have also seen that too
at COB,” he said.
Belle acknowledged that the growing membership expected greater returns on their deposit, and he advised that “unlike banks, credit union is about providing service and therefore return on assets is not the major number one matrix by which we determine our success.
“So we at COB have been very mindful of the fact that we need to control cost. So we look at the admin side of things, and we make sure we provide our members with a better rate of return to what they can get in the commercial banks and we are achieving that,” he explained.
“We are also . . . ensuring that we provide a quality service at a [lending] rate that is lower than what the banks are offering and at the same time provide rate of return on their investment higher than what the banks are offering.”
Belle said despite the challenging economic climate the COB was optimistic, and was creating its own opportunities by venturing into other areas where commercial banks are hesitant to tread.
“Particularly, I know that the banks are kind of restricting their lending to persons in the construction sector getting loans . . . . We also see some other spaces that they are actually trying to get away from – lending to small businesses. We see that as an opportunity for us and that is something we are actually looking into right now,” he said.
The financial report, which was released last month, showed that commercial banks had pulled back generally on their lending last year, resulting in a 1.5 per cent decline in loans.
While there was an uptick in personal loans, as well as loans to the tourism sector, there was a reduction in all other sectors, including construction, professional and other services, as well as to Government and the distribution sector.