Performance Assessment: A Study of Irish Credit Unions

1
Performance Assessment A Study of Irish Credit
Unions

• Donal McKillop
• Queens University, Belfast
• Colin Glass
• University of Ulster

2
Overview of Research

• Profile Irish credit unions
• Profile trade bodies
• PEARLS monitoring
• A single performance metric
• Factors behind performance differences
• Some concluding comments

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What are Credit Unions

• Member owned financial institutions
• Membership defined by a common bond
• Services and products only available to members.
• Services and products provided within strict
  parameters.

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Some Statistics - 2004

• Credit Unions are to be found in 91 countries
• Credit union members total 136 million
• Credit union assets total 708 billion
• In the mature movement in the US 46 of adult
  population belong to a credit union
• Australia (24) Canada (21)

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Profile of Irish Credit Unions
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NI Credit Unions
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Profile of Irish Credit Unions

• Penetration of 70 of adult population
• 595 credit unions 414 RoI 181 NI
• Assets and membership heavily focused on credit
  unions with assets gt 10m
• Appears to be a scale efficiency effect

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Profile of Trade Associations

• ILCU all Ireland dimension(395 RoI 104 NI)
• Est. 1960 2.3m members 4,051m assets
• CUDA RoI (18 members)
• Est. 2001, 300,000 members 574m assets
• UFCU NI (63 members)
• Est. 1985/1995, 30,000 members 36m assets

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Regulation and Supervision (RoI)

• 1997 Credit union act (RoI)
• IFSRA (now the lead regulator) (RoI)
• Primary legislation Credit Union (NI) Order 1985
  (NI)
• Registrar located within DETI (NI)
• Modernisation proposals currently afoot (NI)

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PEARLS

• Protection
• Effective financial structure
• Asset quality
• Rate of return and cost
• Liquidity
• Signs of growth

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PEARLS and the ILCU

• Compute 44 ratios
• Returned as one sheet to a credit union
• Also returned a sector commentary plus averages
  for NI and RoI credit unions
• Supervisory function fine
• Management function - weak

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PEARLS Analysis of Irish Credit Unions, Part 1
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PEARLS Analysis of Irish Credit Unions, Part 2
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DEA

• A non-parametric technique used to construct an
  efficient frontier (best practice frontier)
• Can be utilised to determine technical efficiency
  and allocative efficiency
• Insight can also be offered into scale efficiency

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DEA contd

• Can be used to determine efficient (best
  performing) and inefficient credit unions.
• Can be employed to identify peer credit unions
  which inefficient ones can emulate
• Efficiency analysis can be undertaken within
  various frameworks
• We shall use the PEARLS ratio framework

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DEA Results Irish Credit Unions
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Explaining performance differences
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Concluding Comments

• DEA can be utilised to construct a composite
  measure of performance
• Spread of performance is quite small
• UFCU affiliates and those with an occupational
  based common bond are the best performers
• No significant differences between credit unions
  in NI and RoI
• Next step control for the economic standing of
  the area from which a credit union draws its
  members