The Financial Services Commission (FSC) is clamping down on credit unions and directing them to remove millions they have deposited in financial institutions other than commercial banks.
The move has been confirmed by head of the City of Bridgetown Co-operative Credit Union (COB) Steve Belle, who told BARBADOS BUSINESS AUTHORITY that the supra-regulatory body had also instructed it that the law governing credit unions only allowed them to place funds in commercial banks.
In an interview on the weekend, Belle said the current low interest rate environment made it difficult for credit unions to earn a decent rate of return on deposits in banks.
The credit union boss’ comments came against the backdrop of reports that credit unions had been asked to pull investment deposits from sister credit union-owned institution Capita Financial.
However, Belle said no specific institution was targeted, adding that all non-bank finance houses that were regulated by the Central Bank such as Signia Financial, Globe Finance, Consolidated Finance and Capita Financial have been identified for divestment by credit unions.
The FSC, which regulates securities, mutual funds, insurance companies, credit unions and pension funds, has asked credit unions to prepare divestment plans from non-bank institutions and submit them to the FSC.
But Belle, who heads the island’s second largest credit union, revealed that COB had written to the regulator indicating its displeasure with the move.
“There is dialogue going on between the Barbados Co-operative Credit Union League and the FSC because our position has always been . . . because these institutions are regulated by the Central Bank of Barbados we did not necessarily see the risk.
“In addition, these institutions have always provided us with a little better rate of return on our deposits than the commercial banks because some banks don’t even want our money now because of the high liquidity in the system and they have always paid very low rates of return, even in times when they didn’t have liquidity challenges,” Belle explained.
The senior credit unionist was convinced that the action by the FSC would place credit unions under pressure because of the low rates of return on deposits in the banking system.
“I can’t speak for the other credit unions but we have responded to the FSC expressing our concern about their decision . . . . We have a representative on [the] board of the League and they are pushing our case to ensure that effective lobbying is done in respect of this matter,” Belle noted.
