PEOPLE who stash their savings in credit unions may be putting them in more danger than if they used a conventional bank, warns a top expert in financial risk.

Credit unions often don’t have the systems or management skills to tell whether the institution is on a sound foundation or not, said Wayne Dass, CEO of CariCRIS, the region’s only credit rating agency.

“Some credit unions are huge, bigger than banks, and growing at a rapid rate,” he told Sunday Finance during the Jamaica Stock Exchange Regional Conference on Investment and Capital Markets last week at the Pegasus hotel in New Kingston.

Credit unions are popular with many customers who don’t like the formality of banks. “They feel more at ease,” said Dass.

Plus, credit unions often charge lower interest rates on borrowings than the banks do.

“But customers’ money could be more at risk than in a bank,” he said. “Credit unions need to have stronger oversight put in place.

“Some credit unions are overinvested in one sector, with 60 to 80 per cent in real estate, for example.” A more appropriate share would be 20 to 30 per cent, he said.

His company has developed a model that helps credit unions to assess how well they’re doing.

It looks at how much capital they have, whether their funding from shares and deposits are growing, how well their assets are performing, the qualifications of managers, their profitability and their liquidity, how quickly they could raise cash in an emergency.

CariCRIS is working with the Caribbean Confederation of Credit Unions to apply the model to 50 of the region’s biggest institutions in a US$500,000-programme.

“We’re working out the funding from development agencies,” he said.

“No one has gone in to credit unions and done this kind of research before,” he said.

Credit unions have traditionally argued that they should have a lighter regulatory environment because, unlike banks, they’re not seeking profits. “They have social objectives.”

But Dass argued that since they use a similar business model, taking in deposits and handing out loans, they present similar risks to their customers.

Having social objectives won’t protect them if they’re hit by a major external shock. “If you don’t make sure that you’re financially sound, you will not be able to fulfil that social mandate,” he said.

Many credit unions use a system called Pearls — which, like the Basel system used by banks, sets key figures such as capital ratios — to determine how financially healthy they are.

However, Dass said that it is not explicit enough, noting that there have been notable credit union collapses in the region.

Trinidad and Tobago’s Hindu Credit Union crashed in 2008 with liabilities of US$776 million ($66.5 billion at today’s rate), leaving some 160,000 customers out of pocket and 9,000 staff out of work, he said.

“The Bank of Jamaica is in the process of bringing credit unions closer under its regulations,” Dass said, adding that other jurisdictions are also looking at tighter rules.

BY PAUL RODGERS
Jamaica Observer

BEIJING (Reuters) – China’s official reserves slipped to $3.18 trillion in the final quarter of 2011, signaling that the days of rampant export-led accumulation of foreign currency are numbered and that new monetary policy steps may be needed to counter capital outflows.

The People’s Bank of China published data on Friday showing a $20.6 billion, or 0.6 percent, fall in reserves in the final three months of the year, though Beijing’s stash of foreign wealth is still by far the world’s largest.

Reserves dropped in November and December, the first consecutive monthly fall since the first quarter of 2009, a clear sign of the impact that a falling trade surplus and an outflow of speculative funds is having on China’s capital flows.

And while the quarterly fall does not signal massive capital flight from China, analysts say it does argue for Beijing to further lower the amount of cash it makes banks hold as reserves to ensure sufficient market liquidity.

“The decline in foreign exchange reserves in Q4 is consistent with the sharp reversal in capital flows out of emerging markets in general and the region in particular,” said Andy Ji, an economist at Commonwealth Bank of Australia in Singapore.

“The People’s Bank of China is likely to engage in more cuts in the reserve requirement ratio (RRR) and aggressive liquidity injection through open market operations if the trend deteriorates further,” he said.

FALLING EXPORT DEMAND

China lopped 50 basis points from a record high RRR of 21.5 percent at the end of November, the first cut in three years as it sought to shield its economy from falling export demand from debt-ridden Europe and lethargic U.S. consumers.

Economists polled by Reuters expect China to cut 200 bps from RRR this year, anticipating more sluggish export growth.

Data this week showed Chinese exports growing at their weakest pace in more than two years in December, helping shrink China’s 2011 trade surplus to a three-year low of $155 billion.

Bank of America-Merrill Lynch Economist, Ting Lu, expects a trend of sinking surpluses to retard capital flow into China, necessitating a policy response to keep economic conditions as stable as possible ahead of a change in the country’s top political leadership anticipated in late 2012.

“The drop in foreign currency inflow will have significant implications for China’s monetary policy, but limited impact on liquidity conditions if policymakers are flexible in using monetary tools,” Lu said, adding that he expects more reserve requirement cuts.

“Chinese policymakers will be reluctant to see any risk of a capital flight in 2012 as they seek for stability during leadership change, ” he said.

Separate data showed China may have experienced a third month of capital outflows in December after the central bank and commercial banks sold a net 100.3 billion yuan ($15.9 billion)worth of foreign exchange in December.

HUGE RESERVE RISES “HISTORY”

The drop in China’s reserves may start to appease some critics who say they are a product of an economy reliant on an under-valued yuan for export-driven growth.

The median forecast by economists was for China’s foreign exchange reserves to have held steady at the end of December from the end of the third quarter.

China reserves are the largest in the world, largely due to the central bank’s sterilization of dollar inflows into the country’s closed capital account.

But some analysts noted that increasing use of the yuan in trade settlements would also help slow China’s future build-up of foreign currencies.

“Foreign exchange reserves may rise further in a long term view” but the era of sharp increases is “history”, said Hua Zhongwei, an economist with Huacheng Securities in Beijing.

In the third quarter of 2011, foreign exchange reserves rose just $4.2 billion to a record of $3.2 trillion. The pace was markedly slower than a $152.8 billion rise in the second quarter. ($1 = 6.3178 Chinese yuan)

By Koh Gui Qing
YAHOO News

The euro is near its low for the year following a tumultuous 12 months in which its existence has been questioned.

But Germany’s Finance Minister Wolfgang Schaeuble said he was confident that the currency union would survive.

“I think we will be far enough along in the next 12 months that we will have banished the dangers of contagion and stabilised the eurozone.”

The euro was at $1.2916, a day after reaching a 15-month low of $1.2858.

The European single currency also fell below 100 yen for the first time in ten years.

Germany, the eurozone’s largest economy, has been instrumental in organising bailouts of its neighbours, without which the monetary union might have fallen apart already.

Asked whether he could rule out the 17-nation eurozone breaking up, Mr Schaeuble said: “According to everything that I know at the moment, yes.”

“Of course, the European Union cannot force anyone to stay in if they don’t want to belong any more,” he added. “But no such development can seen at the moment.”

The euro has dropped 3.4% against the US dollar this year, and 2.2% versus the British pound.

Debt yields

In recent months, the yields on Italian and Spanish debt has risen as investors have worried about their ability to pay back their debts.

On Thursday, the Italian government sold 10-year bonds at interest rates as high as 6.98% – just a touch below a level considered unsustainable in the long run.

Italy has 161bn euros in debt repayments due between February and April 2012, all of which it will have to finance through new borrowing.

On Friday, the final trading day of 2011, Italian 10-year debt was trading at 6.96% – up from 4.8% at the end of 2010.

By contrast, on Friday Germany’s 10-year debt yielded 1.8% and the UK’s borrowing cost was about 1.95%.

Bailouts

Last year, the eurozone and the International Monetary Fund bailed out Greece and the Irish Republic, which were struggling to borrow in the financial markets and pay their debts.

This year, it agreed to bail out Portugal – and Greece for a second time.

In September, UK Foreign Secretary William Hague called the euro a “burning building with no exits”.

But in November, eurozone leaders agreed a rescue plan that included boosting the size of its bailout fund, the European Financial Stability Fund, to capacity of 1tn euros.

In December, 26 out of 27 EU member states backed a tax and budget pact to tackle the eurozone debt crisis. Only the UK said it would not join.

BBC News

1. I will make financial education my priority.

I will invest in my own personal development by seeking to learn more about money. I will endeavour to read or listen to good financial advice every single day, as I recognise that most of the solutions to my money problems can be found in other people’s experiences in books and CDs.

2. I will create a budget.

I will no longer be clueless about what I spend money on, as I will take the time to document all the expenses that I expect to come during the year. I will write down all my income sources and then calculate if my earnings can cover my expenses. I will diligently track my monthly spending to determine if my budget is realistic, and make necessary adjustments.

3. I will cut back on buying unnecessary items.

I will examine my budget to see where I’m spending too much money on frivolous things that may contribute to my problems in balancing my budget. I will question myself before I make a purchase, to determine if there are better uses for my money than buying that item.

4. I will save consistently.

I will commit to accumulating money instead of just spending it; so my first budget expense will be my own savings. I will make my savings automatic by setting up a monthly salary deduction or standing order to put money into a separate nest egg account. I will find and save coins every day if I have no source of income.

5. I will build an emergency fund.

I will focus my initial saving efforts on building up a fund to help protect me against possible emergencies such as illness or job loss. I will continue until I have saved at least three to four months of my living expenses, and I won’t use this money for anything except a real crisis.

6. I will reduce my consumer debt.

I will start living within my means and stop using loans to finance consumer items that I can’t really afford. I will create a plan to pay off my existing loans faster, and try to replace my high-interest credit card debt with lower interest options such as a credit union or cash-secured loan.

7. I will design an action plan for my goals.

I will stop merely wishing that I could have things like my own home; instead I will commit to turning my financial dreams into reality. I will set specific and time-bound goals and get assistance from an expert advisor who can help me to create a plan to achieve my goals.

8. I will find ways to earn extra money.

I will seek out opportunities to increase my income beyond my regular pay cheque. I will look for ways to solve people’s problems or fill their needs, and market my God-given talents to make money. I will use my extra earnings to save more, reduce my debt and achieve my goals.

9. I will put my money to work for me.

I will seek to multiply my money by putting it to work in smart investment options. I will learn about investing techniques by reading financial newspapers and online sites, listening to money programmes on radio and TV, and attending seminars. I will not allow greed and ignorance to cause me to risk my funds in unwise schemes.

10. I will make an estate plan.

I will make proper plans to transfer my money and assets when I die, so that I don’t leave my survivors with insufficient funds to pay for my funeral expenses, outstanding bills and estate taxes. I will create a financial legacy of wealth for others to maintain and enjoy for many generations in the future.

11. I will be thankful for all my blessings.

I will not become discontented with my financial status by focusing solely on my material desires. I will resolve to give thanks, every day, for all the possessions and non-material blessings that are currently in my life. I will remember those who are less fortunate and will share what I have with them.

12. I will diligently apply the money lessons I learn.

I will no longer allow the plague of procrastination to derail my financial future. I will act immediately in carrying out all the steps that I need to take to fix my money problems. I will act persistently and will not let discouragement, setbacks or negative circumstances stop me from progressing towards my goals.

Here’s hoping that you will reflect on the many lessons we have shared during 2011, and make every effort to make 2012 your best year yet!

Cheryl Hanson-Simpson
Jamaica Observer

HAVANA, Cuba, Thursday December 22, 2011 – As Cuba’s march toward private sector reform continues, its new business environment is proving increasingly attracting to foreign investment.

According to reports coming out of Canada, the Bank of Nova Scotia has reportedly applied to Cuban authorities to set up a representative office in the capital while Royal Bank is also considering opening an office in Havana.

Both banks already have extensive operations across South America and the Caribbean.

While the Montreal-based National Bank of Canada has operated an office in Cuba for 16 years, this potential move by two of Canada’s largest banks could be seen as legitimising the Raul Castro-led economic reforms that have been taking place on the island.

Just this week the Cuban government announced that banks on the island can now offer loans to private entities and individuals in order to accelerate the burgeoning entrepreneurial class.

The state newspaper Granma said about 500 banks in Cuba will offer the loans, although it remains unclear what interest rates they will charge. Applicants will find out if their loans are approved within twenty days, the paper indicated.

Reportedly, self-employed Cubans will receive minimum loans of about US$125, while farmers will receive at least US$40.

In addition, Cubans will also be able to avail themselves of debit cards, checks, and bank transfers – that is, services common to citizens of capitalist nations.

This liberalisation in banking could signal to the two large Canadian banks that it might be worth re-entering the waters in the Spanish-speaking nation.

Scotiabank and RBC both had branches in the country before the 1959 Cuban Revolution ushered in Communism, and a subsequent U.S. embargo, which slowed foreign investment.

National, Canada’s sixth-largest bank, opened a representative office in Havana in 1995. The small operation is not a bank branch though, and mostly handles trade finance.

Banco Central de Cuba, the country’s central bank, lists National as having a relationship with the country that dates back more than 28 years, including financing export development, securities and insurance businesses there.

The Cuba Trade and Economic Council lists more than 80 companies in Canada with business ties to Cuba, including Bell Canada, Bombardier, and dozens of oil and gas companies.

Caribbean 360 News

WASHINGTON, USA — The Inter-American Development Bank (IDB) has approved a US$40 million loan that supports the government of Suriname’s comprehensive and fundamental financial sector reform program designed to strengthen financial institutions and financial markets and increase their effectiveness.

“Suriname has enjoyed robust and macro economically balanced growth for the past five years,” said IDB team leader Frank Nieder. “The program should accelerate the development of financial market in a sustainable manner and will reduce their vulnerability to macroeconomic shocks.”

This operation will help create a better enabling environment for public and private financial markets and institutions and to strengthen the Central Bank of Suriname in the conduct of its responsibilities.

Policy measures will be adopted in the framework in the areas of macroeconomic policy, legal and regulatory framework, financial sector supervision, inter-bank and securities market development, complementary institutions for broader access to finance, and public bank reform.

This financing is the first of a series of three policy-based program loans estimated to total US$70 million.

Caribbean News Now