Regional rating agency, CariCRIS, yesterday announced that it was upgrading its credit ratings for Eastern Credit Union Co-operative Society Ltd (ECU) by one notch to CariBBB (Foreign and Local Currency ratings) on the regional rating scale, and ttBBB on the Trinidad and Tobago (T&T) national scale.
In a statement, CariCRIS said the ratings indicated that the level of creditworthiness of this obligor, adjudged in relation to other obligors in the Caribbean and within T&T is adequate.
According to the rating agency: “The ratings reflect the company’s improved asset quality as evidenced by its declining non-performing loans to gross loans ratio, and its above-average earnings, profitability and operating cashflows compared to the T&T peer sample.”
In its rating rationale for the upgrade, CariCRIS said that one of the factors in support of the rating was the decline in the non-performing loan (NPLs)ratios, which have contributed to a stronger balance sheet, and have facilitated greater preparedness for the draft Credit Union Prudential Guidelines.
The quality of ECU’s loan portfolio has improved each year since 2012 and much of the annual reduction in NPLs is attributable to the write-off of legacy bad loans in recent years. This has resulted in lower NPL balances and better provision and tangible net worth (TNW) coverage of NPLs.
The credit union’s ratio of gross NPLs to gross loans has also been trending downward, although it remains moderately above the average for T&T commercial banks. ECU’s gross NPLs as a percentage of gross loans was 5.7 per cent in the period ending March 2015, compared with the average of T&T’s commercial banks, which was 4.1 per cent.
CariCRIS said that based on its analysis, it believed that the credit union’s asset risk profile was materially better than in previous years, driven by a more proactive risk management attitude.
The rating agency said it viewed the reduction in NPLs as something that “would continue over the short term, and that ECU would be in a better position to comply with the asset quality benchmarks stipulated by the Central Bank’s draft Credit Union Prudential Guidelines.”
This may result in lower future compliance costs for ECU, and better profitability measures than for less-prepared credit unions.
CariCRIS said that ECU’s leadership of the T&T credit union market also enhanced its income earning and resource-raising potential.
It added: “There is a need to educate elected officers in the area of credit risk management to enhance the quality of credit decision making, and this somewhat tempers the credit union’s ratings.”
ECU, established in April 1973 under the Co-operative Societies Act, was estimated to have 170,000 members as at the end of March 2015.
Based on the latest available data as at December 2013, ECU’s membership represented 29.3 per cent of total T&T credit union members, and 14 per cent of total credit union assets, comparable to prior years.
CariCRIS anticipates that ECU will retain its market position as a leading credit union in T&T over the medium term, with moderate increases in membership and assets.
The credit union offers a range of products and services including savings accounts, fixed deposits, consumer loans, mortgages and business loans.
It also owns 100 per cent of a real estate management and development company, Eastern Properties Limited, which owns ECU’s Administrative Headquarters in La Joya, Trinidad.