THE ISSUE: Nice sentiment but no cakewalk
By Eric Smith | Wed, April 18, 2012 - 12:00 AM
The news that the local credit union movement has been considering the establishment of a commercial bank did not come as a surprise, given the tremendous growth of that sector over the past two decades.
Some leaders in that movement have long said that the obvious next step is managing their money themselves rather than having to place it in a commercial bank for other financial institutions to benefit.
Additionally, the limitations placed on the credit union movement – in terms of its inability to issue its own cheques, have its own credit cards, and offer a variety of services that commercial banks can provide but credit unions cannot – was reason enough to take what may appear the next logical step.
Local credit unions, which have more than $1 billion in deposits, have provided ordinary Barbadians with the financial means to improve their standard of living within the past two decades; this is particularly true in terms of housing, education and investments.
The reality, however, is that while credit unions have done well and provide a valuable service even while competing among themselves, the banking arena is vastly different and therefore the public will be very eager to hear what former Central Bank of Barbados Governor Sir Courtney Blackman has recommended to the Barbados Co-operative and Credit Union League, which has commissioned him to do a feasibility study on establishing a local bank.
His study was expected to be handed in by April 15.
Hally Haynes, president of the league, noted in anticipation of the report that when Sir Courtney completes his study, it would then have to be reviewed by the league’s board of directors and subsequently the credit unions that make up the league before the best way forward could be plotted to help chart the path to the launch of any such indigeneous financial institution.
“We have considerable desposits across Barbados scattered across banks and since there is no locally owned and operated bank, it presents an opportunity for the credit union movement to seek to establish a cooperative bank for credit unions and Barbadians living in Barbados and abroad,” Haynes said.
While we have no idea what Sir Courtney’s report will recommend, setting up a locally owned bank is not going to be an esay ride for the credit union movement.
It is not whether there is a case for a Barbados-owned bank but rather what the structure will be, the capital adequacy and liquidity – and its risk management will be paramount.
The Basel Agreements will have a most profound effect even on a small local bank.
Of course, issues such as regulatory requirements will be assiduously monitored by the Central Bank of Barbados.
But beyond the regulation and compliance issues, both locally and internationally inspired, there is the issue of competition from other commercial banks and the non-banking financial sectors, which has been both aggressive and intense – something the credit union movement must not ignore.
What has been happening in the banking sector has been interesting. Banks operating in Barbados have been to a large extent nothing more than community banks but with very strong international and/or regional connections. They have vested interests in this country and will not turn a blind eye to any new competition.
Take the case of the pending rebranding of Barbados National Bank to Republic Bank of Trinidad and Tobago – it seems to mean little to most consumers. That CIBC owes almost all of FirstCaribbean International Bank has not created any outcry, and the pending amalagamation of RBTT with RBC is not seen as a cause for concern. These banks, like the local ones, have remained strong and secure.
The credit unions’ growth, especially during the period when members enjoyed tax concessions, has been spectacular, but setting up a credit union bank may be challenging despite whatever methods are used.
Having a local bank may be a nice sentiment, but consumers want security for their money – whether shares or deposits – because peace of mind is foremost, given all that has happened with Almond Resorts Inc., CLICO and even Sunbeach.
The league should therefore do a number of things on its own before taking the next step.
• Find out what its members really think.
• Listen to credit union employees.
• Differentiate itself from the competition (even the viable credit unions and non-banking financial sector).
• Expand credit union services in meaningful ways.
• Stay closely in touch with members.
After some in-depth and meaningful market research, the Credit Union League may help its members to better position themselves so as not only to survive, but thrive in the next several years without becoming a community bank.
And in turn, those viable credit unions can help their members – serving their customers will be key.
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