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.