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  • Writer's pictureThe San Juan Daily Star

Index: Credit union sector stable despite adverse economy

Economist Leslie Adames

By The Star Staff

The financial stability index of the credit union industry in Puerto Rico, prepared by Estudios Técnicos Inc. (ETI), still indicates a solid performance, although the recent trajectory in the index has been affected by a decrease in deposits and an increase in reserves associated with investments in marketable securities made by the sector.

Economist Leslie Adames, director of ETI’s Economic Policy and Analysis Division, commented in a written statement that “the financial position of the sector continued to show a good performance in the third quarter with growth in the customer base, in lending activity, improvements in profitability and stable asset quality.”

The index stood at a value of 0.70 in the third quarter of 2022, reflecting a moderate quarterly decrease when compared to the value of 0.75 in the previous quarter, but remains in positive territory when compared to the 0.68 registered for the end of the third quarter of 2021. The index fluctuates between 0 (financial fragility) and 1 (financial strength). It measures the financial health of the credit union industry against four criteria: liquidity (total loans/deposits), solvency (capital to total assets), asset quality (non-performing loans/total loans) and profitability (return on assets, or ROA).

“In the third quarter of 2022, total deposits at cooperatives decreased by $24 million to $8.101 billion compared to the previous quarter. This was something we had foreseen would happen because the liquidity associated with federal stimulus funds aimed at supporting people’s incomes has been used in part to finance consumption in durable goods and compensate for the loss in purchasing power associated with the inflationary environment that still prevails in the economy,” Adames said. “Even so, the sector reflects a positive variation in deposits of $2.021 billion compared to the balance in deposits of $5.951 billion at the end of the first quarter of 2020.”

As for the number of members, the upward trend continues with 3,900 additional members between the second and third quarters of 2022, also reflecting a net increase of 18,921 members to 1.12 million during the 12-month period that ended in the third quarter of 2022, Adames reported.

Meanwhile, lending activity increased from $5.925 billion in the second quarter of 2022 to $6.124 billion in the third quarter of 2022 supported mainly by increases in the balance sheets of the mortgage and automobile loan portfolios. The increase in deposit-related credit has contributed to the sector’s liquidity starting to move to the levels prevailing in the pre-pandemic period.

“The ratio of loans to total deposits stood at 75.6 percent in the third quarter of 2020, after hitting a low of 67.2 percent in the second quarter of 2021,” Adames said. “To the extent that credit activity maintains a higher growth rate than deposits, we should expect this indicator to maintain a trajectory toward the pre-pandemic average of 82.1 percent. In this sense, liquidity is something that the sector must continue to manage with caution.”

The delinquency rate remained stable at 2.01% in the third quarter of 2022 compared to 2.11% in the third quarter of 2020, although it increased slightly compared to 1.97% for the second quarter of 2022. However, current levels of provisions for bad loans and for the total loan portfolio suggest that the sector maintains the resources needed to cover credit risk in its loan portfolios.

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