Over $70 million of bad debt is set to be written off by Venture Credit Union as it attempts to be fully compliant with the international accounting standards for financial institutions.
President of the Credit Union’s board of directors Hayden Ferreira explained that the debt had been accumulated on Venture Credit Union’s books for some time but it finally put measures in place to address it.
“It’s really because a lot this debt is historic debt. Not two or three years ago, several years ago,” said Ferreira in a brief phone conversation with the Business Guardian.
He said the credit union had been provisioning for the massive debt for many years now but not writing it off.
“What we have started to do is the past years is more write offs to clean off this legacy debt,” said Ferreira who would later send the Business Guardian a statement further clarifying the position of the credit union.
The statement said, “Over the 25-year life of Venture Credit Union, the society, like all financial institutions, experienced delinquency in its loan portfolio. However, contrary to the norms of this industry, these bad debts were never written off until very recently and this resulted in an amassment of these debts on the society’s financial books.”
The statement continued, “Fortunately, however, we were, for several years, making provisions of funds to align with the value of these bad debts and therefore were one of the first credit unions to be fully compliant with the new IFRS 9 Accounting Standard that governs provisioning.
Venture has, therefore, properly provisioned for bad debt and the Board has recognised, with the concurrence of the membership, the need to actually execute the write-offs from our financial accounts in keeping with industry norms.”
However it was made clear that despite the write off, the credit union would still seek to recover outstanding payments from membership.
“In this regard, the recent AGM followed in the pattern of recent ones. It should be noted, however, that these bad debts remain on the member’s accounts to support continued aggressive recovery efforts,” the credit union’s statement ended.
Despite this massive write off, the credit union continued to boast that it was doing well.
In Venture’s annual report it was said that the financial institution was seeing favourable returns.
The president’s report states the credit union was, in fact, stronger than it had been years prior.
“I am aware that this may be difficult to believe so let me explain. It is a fact that Venture grew significantly over a seven-year period ending around 2016, doubling membership, staff complement and total assets at a creditable compound annual growth rate of 12 per cent.”
However reference was made in the report to the need for the mounting debt to be addressed.
“But much like the human form, growth through adding weight is not necessarily desirable unless accompanied by building muscle mass through exercise, otherwise it ends in obesity. The point here is growth that is not carefully planned and managed can create more challenge than anticipated, and in Venture’s case the full organisation’s capability to handle it was not present,” said the president’s report.
“The result was loan delinquency ballooned by more than a factor of six in the same seven-year period, and later our bad debt provisioning by a factor of nine to cater for it.”
However the president of the credit union’s board of directors said he optimistic based on the measures put in place by the institution in the past three years to balance their books.
“The result of the foregoing efforts has been very encouraging with the delinquency level of loans disbursed five per cent (the industry benchmark), and the older delinquency already showing a one-third reduction as compared to pre-2017.
“Meanwhile, the processing of loans has been enhanced so that the majority are now disbursed within six days once all relevant documents are available, and urgent requests are handled expeditiously,” the annual report noted.
The delinquency in repayments however was still noted as a concern by the group as the president’s report stated “the area that predictably has been most challenging has been the Delinquency, particularly associated with loans granted prior to 2017 (commonly called legacy delinquency).
The board’s delinquency sub-committee together with management has had a singular focus on the matter and has worked diligently over the year, having to address the loans on a case by case basis.”
The Business Guardian attempted to get some more definitive answers concerning the loan policy of the credit union given these concerns, and sent these questions to Ferreira.
Has there been any increase in non-performing loans?
Given the economic climate will there be a tightening those criteria for people to get loans for Venture Credit Union?
What will be the impact on small businesses and others?
Has the closure of Petrotrin impacted VCU’s loan stock?
Despite numerous assurances that a response would be sent, Ferreira did not answer the Business Guardian’s phone calls nor respond to these queries via WhatsApp before press time.
The annual report, however, speaks on the impact of the some of the challenges faced the credit union both with the older loans and the impact of the pandemic.
The report notes “in some instances, the poor administrative quality of the loan makes legal action more complex. Members should be comforted though that the board is unanimous of the view that each loan is to be repaid and is intent to pursue all available options to achieve this goal.”
The report notes also, “Even prior to the current context of COVID-19 pandemic, the local economy was quite anaemic, with job losses in several industries, some impacting our members. All retail institutions and businesses in the financial sector (such as ours) have felt the “pinch” on sales as customers, with uncertain future earnings, have been less inclined to go into debt.”
The credit union stated in their annual reports that various technological adjustment have helped them see improvements in the past few months.
These changes included, “A re-designed website optimised for mobile devices that gave members improved access to Venture” and the “Implementation of a number of account transfer options for easier access to funds.”
These efforts, VCU said, bolstered the company “following a slow start earlier this year (associated with COVID-19) our sales have shown a definite improvement over the last four months, to levels in and around budgeted targets, this representing a significant improvement over 2019.”
The credit union report said despite COVID they achieved a net surplus in 2020, with a fiscal performance that served as improvements over 2018 and 2019.