Credit unions in Great Britain: recent trends and current prospects

Abstract

Against the current backdrop of deteriorating economic and financial conditions, the authors consider recent trends and current prospects for credit unions in Great Britain. Although credit unions have experienced solid membership and asset growth, there are clouds on the horizon. Bad debts and loan arrears are on the rise and may be linked to recent legislative amendments and the increasing use by government of credit unions as a mechanism to achieve its financial inclusion goals. Whatever the reason, the deterioration in the loan book needs to be quickly addressed, or it will ultimately result in either more government bailouts or a stream of failing credit unions.

Notes

* In March 2009 there were 7,905 credit unions in the US serving 90.5 million members. US credit unions have not been immune from the financial downturn. For example, delinquencies as a percentage of loans rose from 0.93% in 2007 to 1.37% in 2008 and then to 1.44% in March 2009, while the percentage of credit unions with a positive return on assets fell from 87.3% (2007) to 76.4% (2008) and then 21.6% (March 2009).

* Since the onset of the financial crisis, some corporate credit unions have experienced significant reductions in the value of their investments. This has led to liquidity problems, as the extent to which these assets can be traded has faltered. In January 2009 the regulator, the National Credit Union Association (NCUA), intervened to support the corporate credit unions via the introduction of a Corporate Stabilization Plan. This included guaranteeing uninsured shares at all corporate credit unions and issuing a $1 billion capital note to the US Central Corporate Federal Credit Union. Further problems emerged in March 2009, when the two largest corporate credit unions, US Central and Western Corporate, were placed in conservatorship. These events led to an NCUA announcement of an increase in premiums to be collected from individual credit unions to maintain the deposit insurance fund. This reduced both the net worth and return on assets of many credit unions in 2009.

* Jones (2008) argues that the transition from old to new model credit unions represents a break from the perception that credit unions are the ‘poor person's bank’. We would argue that the government's direct use and support of credit unions in its financial inclusion agenda accentuates the image of Great Britain's credit unions as the poor person's bank.

* A field of membership refers to the areas, organizations etc. that a credit union can attract members from. A field of membership test is an entrance requirement which determines if a person meets the criteria specified by the credit union. For example, it may be that evidence to support a member's postcode, or the postcode of their employment is required. If the latter is used the individual may also have to prove that they are being employed by that particular business (McKillop et al., 2010).

Additional information

Notes on contributors

Donal McKillop

Donal McKillop is Professor of Financial Services at Queen's University Belfast, Northern Ireland, UK.

Anne Marie Ward

Anne Marie Ward is Professor of Accounting at the University of Ulster, Northern Ireland, UK.

John O. S. Wilson

John O. S. Wilson is Professor of Banking and Finance at the University of St Andrews, Scotland, UK.