Churches on the lookout for M&A targets
Published:Sunday | May 16, 2010 | 12:00 AM
Churches Cooperative Credit Union Limited (CCCU) is positioning to snap up smaller competing agencies which are expected to become merger or acquisition targets, as new central bank rules are implemented throughout the movement.
Once self-regulated by the umbrella Jamaica Cooperative Credit Union League (JCCUL), the lending agencies are now being brought under the ambit of the Bank of Jamaica (BOJ) and will be required to conform to new rules for risk exposure, capital and asset cover.
"The credit-union movement is poised for change and our credit union must be prepared for this change," Orville Hill, president of CCCU, told his members at the company's 36th annual general meeting.
"The change in the landscape of the credit-union movement will bring within a reasonable time a contraction in the number of credit unions that now operate, and we have to position ours to respond to merger opportunities."
Hill, whose substantive job is finance manager at Caribbean Cement Company Limited, said the contraction will not happen all at once, but that within a three-year period following the enactment of the BOJ legislation, the movement is likely to lose one-third of its numbers.
Strengthening Asset Base
The sector comprises 45 credit unions with combined membership of 950,000, according to JCCUL data. The first big merger occurred last year when the largest of the movement, COK, merged with Sodality to create an institution of 234,000 members and assets of J$7.7 billion.
CCCU is the third largest in the movement, with asset base of J$3.87 billion, and capital of J$680 million, a position Churches says it is working to strengthen.
Established in 1971, it has six branches and a membership of 125,500.
"Worldwide, there is always some kind of contraction when a new regulatory framework is put in place. Because the requirements are so onerous, some may decide to merge, and Jamaica will be no different," said Glen Francis, general manager of the JCCUL.
Francis said a definitive time line had not been fixed for credit unions to be finally placed under the central bank's wing, but that based on the International Monetary Fund agreement in February, it has to be soon.
Hill says some credit unions will not be able to meet the requirements being contemplated by the BOJ to strengthen the sector.
new rules
Start-ups will need J$5 million of capital, while existing credit unions will be required to maintain capital equivalent to at least six of their asset base.
Hill said $5 million in the scheme of larger credit unions is "not a difficulty but others will have difficulty. It will also deter the formation of new unions."
There will also be new rules for reporting that "can hardly be done or is difficult to do without a computer system to generate it. So credit unions will need to put in place additional infrastructure, and if you are not big enough, then it may not be cost effective to implement that kind of technology," he said.
Those not in compliance at the initial stage will be given time in which to submit a plan and a timetable.
The CCCU president said his own agency faced a challenging 2009 that ended with an 11 per cent reduction in its loan portfolio, but believes it will regain lost ground this period.
"We have strengthened the operation of our branch network, internal banking, and upgraded our technology network, resulting in a reduction in the processing time at the teller window," said Hill.