Troubled Firefighters’ Credit Union sparks concern about small finance institutions NZ Firefighters Credit Union

 

As the Reserve Bank expresses concern about the scale and profitability of small finance businesses, firefighters will vote today on the very survival of their credit union

The introduction of a law setting in place $100,000 deposit guarantees can't come soon enough for members of the NZ Firefighters Credit Union, whose much-loved institution is on the brink of failure.

Firefighters will vote today on whether to transfer their business to the bigger NZCU Auckland or, if they can't agree on that, whether to call in the liquidators.

It comes as the Reserve Bank warns in its Financial Stability Report of the low returns on assets in the country's diminishing number of credit unions. Adrian Orr tells Newsroom: "Over recent times, they have been quite significantly challenged on scale and profitability."

Ever since the $380 million Government bail-out of BNZ in 1990, successive ministers have treated the big banks as "too big to fail". The Reserve Bank has required them to increase their capitalisation, with new rules coming into effect this year.

By contrast, there are concerns that the small credit unions, and some other building societies and finance companies, are too small to survive.

Last month, regulators advised that the Firefighters Credit Union was in breach of the trust deed for failure to comply with requirements under the Friendly Societies and Credit Unions Act 1982.

They agreed to hold off sending in the receivers until after Friday's meeting, as long as the credit union's capital ratio remains above 5 percent. It has ceased new lending, it's not accepting new members, and it is required to keep operating expenses to a minimum, and undergo daily supervision.

Chair Mark Virtue has issued a message to members on the credit union website. "As a small financial entity, we are finding it difficult to compete due to higher costs associated with the delivery of financial services and, in recent years, increased costs of compliance," he says.

"We are not alone - the number of credit unions in New Zealand has reduced from 70 (20 years ago) to 30 (10 years ago) to just eight today."

Read the complete story on NZ Credit Unions HERE