Credit unions push back

The regional credit union movement would resist attempts to force it to comply with regulations of the International Financial Reporting Standards 9 (IFRS 9).

Joseph Remy, vice-president of the Caribbean Confederation of Credit Unions (CCCU), declared this firm position after the closing session of the CCCU convention and annual general meeting on June 20, at Hyatt Regency, Port of Spain.

Promoted by the International Accounting Standards Board (IASB), the IFRS 9, which took effect on January 1, replaced the International Accounting Standard 39 (IAS 39). It dealt with credit unions' loan loss arrangements on the basis of historical data.

The IASB, which addresses accounting for financial instruments in the areas of classification and measurement of financial instruments, impairment of financial assets and hedge accounting, is urging credit unions to adopt the IFRS 9.

However, some are unwilling to comply given what they consider to be its negative implications for their operations.

Speaking to Business Day, Remy said the IFRS 9 would negatively impact credit unions across the region.

The five-day conference, titled Credit Unions: The Power To Change The Future, discussed strategies of how the regional credit union movement could reposition itself to become more impactful among its membership.

At the event, the CCCU board reported to 16 full-fledged affiliate countries across the region and three associate affiliates.

Remy, who is also president of the Co-operative Credit Union League of TT, said the IFRS 9 was not an option.

“What was the consensus coming out of the convention was that we should push back against this particular standard because of the fact that it is not applicable to credit unions and will negatively impact the movement,” he said.

Remy said average citizens with modest means would be affected.

“What they look for in the credit union is really some kind of return on their meagre investment when the year comes. When that is taken away from them, you will find they will gravitate away from the credit unions and lean to the commercial banks who have more capital to put in the system to really stave off the negative fallout.”

Remy argued the IFRS 9 was devised for large financial institutions such as commercial banks and not credit unions.

“But because credit unions are considered as part of the financial institutional structure, they want to impose the IFRS line on it. The consensus among the convention was that there should be push back because in other regions, particularly in North America and the United Kingdom, there was a push back in terms of that.”

Remy added: “We should look at the IFRS Standard 39, and not the IFRS 9 application, for small and medium enterprises which we believe is more applicable to credit unions. It is not as stringent and onerous. So that was one of the major take-aways from the convention.”

Remy said the IFRS 9 was an international accounting standard in which the IASB dictated how a financial institution should account for certain information on its balance sheet.

“Normally, when we grant loans, we will make a provision for what we call doubtful loans and we will go on the basis of history," he explained.

“So, if you borrow and your pattern is good, we would not make any provision for your loan because you are always paying. What they (IASB) is saying now is that they don’t want it on a historical basis only. They want it on a future projection basis.

“So, depending on where a person works, they are saying that credit unions should factor something into the equation for loan loss.”

Remy said the movement regarded this decision as “very, very subjective."

“Because of that, credit unions now, the surplus that would remain for division among its members will be drastically reduced and as such the dividend payments that credit unions normally pay out to their members could be impacted on negatively.”

Asked what would become of credit unions who have complied with the IFRS 9, Remy said: “When they are reporting for the 2018 accounting period, you have to factor that in now. So, you will find that a lot of credit unions, when they doing their end of year accounts for 2018, they will have to make that provision which will impact on their net surplus and by extension, the dividend payments to members.”

Remy said the CCCU also examined the possibility of redoing the confederation’s governance model “because we are having a situation where to appropriately govern the entire region, we will need to re-look our governance structure so that the regional body could be more effective in terms of its advocacy in providing the kind of leverage that credit unions would want us to provide.”

Technology also was on the CCCU’s agenda.

“We examined the need to find a common platform around the region that will be cost effective and provide economies of scale for credit unions that will allow us not to have a myriad of different syntax providers but a core of solution providers that subscribe to the credit union financial structure, and its organisational and governance structure, and also bring about a reduced cost of operations for credit unions.”

The International Labour Organisation (ILO), Remy said, devised a training module which he felt was “very critical” on the last day of the convention.

“It is a training module for the whole credit union sector in terms of cooperative development.

“We believe that was a critical intervention by the ILO so it now gives us the opportunity to have a tripartite-developed document that speaks to the issue of cooperative development and education.”

“As such, we believe those were some of the positive things that came out of the convention.”

Regarding Prime Minister Dr Keith Rowley’s feature address to the forum on June 17, Remy said: “What came out of the Prime Minister’s address was the fact that because of the growth in the cooperative credit union sector, he is of the view that we should subscribe to enhanced regulatory structures, which we agreed to.

“But the regulatory structure that we believe we should subscribe to should not be one that is unique to the corporate credit union sector and wouldn’t work against the interest of the development of credit unions in the region.”

In his address, the PM said the credit union movement was “growing astronomically in stamina, strength and stature.”

“But the real significance, true value and full potential of this phenomenal growth and development will be lost to the world at large if, side by side, the movement does not come face to face with commensurate levels of independence, responsibility, accountability, authority, and maturity: free from dependence upon commercial banks and private sector financial institutions...," Rowley had said.