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Case study
Publication date: 12 November 2018

Gina Grandy and Daphne Rixon

Ben Chang, the CEO of a small credit union, Neighbourhood Credit Union (Neighbourhood), located in Atlantic Canada was evaluating a possible merger with another larger credit union

Abstract

Synopsis

Ben Chang, the CEO of a small credit union, Neighbourhood Credit Union (Neighbourhood), located in Atlantic Canada was evaluating a possible merger with another larger credit union, Pleasantview Credit Union (Pleasantview). Chang and Neighbourhood’s Board of Directors (Board) were interested in a merger that would enhance member benefits via improved technology, innovative delivery channels and a more robust financial planning and wealth management capability. Chang, along with a team of experts, was methodical in seeking out interested credit unions. Pleasantview emerged as a strong candidate from the expression of interest stage. The initial due diligence review was complete, the memorandum of understanding signed and a working group comprised of members from both credit unions formed. Chang, however, was becoming increasingly concerned about the lack of strategic fit between Neighbourhood and Pleasantview. In conversation with the consultant hired to assist with the merger process, Chang was considering recommending to the Board that the merger process with Pleasantview be halted. It was January 2015 and Chang was set to retire in May. Before he retired he wanted a plan in place that ensured increased member benefits, as well one that balanced growth and sustainability for Neighbourhood. Chang was scheduled to meet with the Board in four days. He needed a recommendation that would address the current merger situation, as well as provide other options for Neighbourhood.

Research methodology

This case is based upon primary and secondary data collection. Formal and follow-up informal interviews were conducted in 2015 with the CEO and “merger” consultant at Neighbourhood Credit Union. Organisational documents and publicly available documents were also consulted. To ensure the confidentiality terms of the merger discussions, the case is disguised with respect to the name and location of the credit unions, the names of the CEO and consultant, as well as the financials. The timeline, process followed, key decision and opinions of the CEO and merger consultant as presented in the case are real.

Relevant courses and levels

This case is formulated for university undergraduate students in their third or fourth years of study and graduate students. It is appropriate for strategic management and co-operative/not-for-profit management classes intended for a 60–75 min class session.

Details

The CASE Journal, vol. 14 no. 6
Type: Case Study
ISSN: 1544-9106

Keywords

Article
Publication date: 26 November 2018

David A. Walker and Kathryn I. Smith

In total, 14 credit unions have acquired 16 banks and savings institutions since 2012; 7 additional acquisitions are in progress and are expected to close before year-end 2019…

Abstract

Purpose

In total, 14 credit unions have acquired 16 banks and savings institutions since 2012; 7 additional acquisitions are in progress and are expected to close before year-end 2019. The analysis of the population of these acquisitions spans the paths of annual differences in CAMEL ratios. Most acquirers have a somewhat revised capital structure and are often benefiting from economies of scope, as well as economies of scale. Since their acquisitions, the acquiring credit unions have become less risky, measured by simulated CAMEL ratios, and they are lending a larger share of their deposits. There is no apparent financial reason to discourage credit unions from acquiring additional banks and savings institutions. The National Credit Union Administration does not need to be particularly hesitant to allow credit unions to acquire banks and thrifts.

Design/methodology/approach

Financial analysis is done via simulated CAMEL ratios.

Findings

After acquiring banks, credit unions are less risky and lend a greater share of their deposits.

Research limitations/implications

The study analyzes the population of the credit unions that have acquired banks since 2012, but the population consists of 14 banks acquiring 16 credit unions.

Practical implications

Credit unions should not be prohibited from further acquisitions of banks and thrifts.

Social implications

Credit union members are better served after a credit union acquires a bank.

Originality/value

No previous study has explored the effects of credit unions acquiring banks and thrifts, which began in 2012.

Details

Journal of Financial Economic Policy, vol. 11 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

Open Access
Article
Publication date: 5 June 2020

Ricardo Terranova Favalli, Alexandre Gori Maia and Jose Maria Ferreira Jardim da Silveira

This paper aims to evaluate the relation between governance and financial efficiency of credit unions in Brazil. The study shows how poor financial efficiency in credit unions may…

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Abstract

Purpose

This paper aims to evaluate the relation between governance and financial efficiency of credit unions in Brazil. The study shows how poor financial efficiency in credit unions may result from undesirable configurations in executive management and other variables related to governance.

Design/methodology/approach

The study develops an innovative methodology to classify credit unions according to the level of governance using indicators of representativeness and participation, leadership, management and supervision. This methodology integrates the use of multiple correspondence and cluster analysis. The study then applies stochastic frontier models to analyze how governance affects the indicators of financial efficiency.

Findings

The results highlight that better governance substantially increases the efficiency of credit unions in terms of a higher level of credit operations per institution.

Originality/value

The paper uses a pioneering survey applied by the Central Bank to almost the total population of credit unions in Brazil. The results highlight how to operationalize a subjective and broad concept related to cooperative governance to identify the remarkable impacts of good governance practices on the financial efficiency of credit unions.

Details

RAUSP Management Journal, vol. 55 no. 3
Type: Research Article
ISSN: 2531-0488

Keywords

Article
Publication date: 8 May 2018

M. Kabir Hassan, Jennifer Brodmann, Blake Rayfield and Makeen Huda

The purpose of this paper is to investigate proprietary data from customers of a Southern Louisiana credit union. It analyzes the factors that contribute to an accelerated failure…

Abstract

Purpose

The purpose of this paper is to investigate proprietary data from customers of a Southern Louisiana credit union. It analyzes the factors that contribute to an accelerated failure time (AFT) using information from customers’ credit applications as well as information provided in their credit report.

Design/methodology/approach

This paper investigates the factors that affect credit risk using survival analysis by employing two primary models – the AFT model and the Cox proportional hazard (PH) model. While several studies employ the Cox PH model, few use the AFT model. However, this paper concludes that the AFT model has superior predictive qualities.

Findings

This paper finds that the factors specific to borrowers and local factors play an important role in the duration of a loan.

Practical implications

This paper offers an easily interpretable model for determining the duration of a potential borrower. The marketing department of credit unions can then use this information to predict when a customer will default, thus allowing the credit union to intervene in a timely manner to prevent defaults. Further, the credit union can use this information to seek out customers who are less likely to default.

Originality/value

This study is different from the previous research due to its focus on credit unions, which have distinct characteristics. Compared to similar lending institutions, the charter of the credit union does not allow management to sell off loans to other investors.

Details

International Journal of Bank Marketing, vol. 36 no. 3
Type: Research Article
ISSN: 0265-2323

Keywords

Open Access
Article
Publication date: 8 July 2019

Daniel Abreu Vasconcellos de Paula, Rinaldo Artes, Fabio Ayres and Andrea Maria Accioly Fonseca Minardi

Although credit unions are nonprofit organizations, their objectives depend on the efficient management of their resources and credit risk aligned with the principles of the…

2514

Abstract

Purpose

Although credit unions are nonprofit organizations, their objectives depend on the efficient management of their resources and credit risk aligned with the principles of the cooperative doctrine. This paper aims to propose the combined use of credit scoring and profit scoring to increase the effectiveness of the loan-granting process in credit unions.

Design/methodology/approach

This sample is composed by the data of personal loans transactions of a Brazilian credit union.

Findings

The analysis reveals that the use of statistical methods improves significantly the predictability of default when compared to the use of subjective techniques and the superiority of the random forests model in estimating credit scoring and profit scoring when compared to logit and ordinary least squares method (OLS) regression. The study also illustrates how both analyses can be used jointly for more effective decision-making.

Originality/value

Replacing subjective analysis with objective credit analysis using deterministic models will benefit Brazilian credit unions. The credit decision will be based on the input variables and on clear criteria, turning the decision-making process impartial. The joint use of credit scoring and profit scoring allows granting credit for the clients with the highest potential to pay debt obligation and, at the same time, to certify that the transaction profitability meets the goals of the organization: to be sustainable and to provide loans and investment opportunities at attractive rates to members.

Details

RAUSP Management Journal, vol. 54 no. 3
Type: Research Article
ISSN: 2531-0488

Keywords

Open Access
Article
Publication date: 5 June 2020

Manuela Gonçalves Barros, Marcelo Botelho da Costa Moraes, Alexandre Pereira Salgado Junior and Marco Antonio Alves de Souza Junior

The purpose of this paper is to evaluate the efficiency in financial intermediation and the cost efficiency in banking service of credit unions in Brazil, based on essentially…

1821

Abstract

Purpose

The purpose of this paper is to evaluate the efficiency in financial intermediation and the cost efficiency in banking service of credit unions in Brazil, based on essentially accounting variables, and to analyze the temporal evolution of the efficiency of these cooperatives.

Design/methodology/approach

With a sample of 315 cooperatives over the period from 2007 to 2014, this research uses a two-stage process: application of regression models with panel data to verify which variables are related to the defined outputs, with the reduction of 31 variables to 8 variables in both models; and application of the data envelopment analysis method to obtain an analysis of credit unions’ efficiency.

Findings

The results demonstrate a high level of efficiency in financial intermediation, with low variation over time, associated with a low efficiency in the banking service, in which few cooperatives have remained efficient over time. In addition, the cooperatives with highest efficiency in financial intermediation were also the most efficient in providing services.

Research limitations/implications

This research has some limitations about the capacity of the proxies used to capture the real effect of the variables and assumptions of economic relations resulting in restrictions to generalize the results.

Practical implications

Cooperatives are usually analyzed under just one dimension. By separating the analysis into financial intermediation and banking services, cooperatives that are more efficient in each dimension can be identified, in addition to analyzing the evolution over time. The authors found that efficiency tends to be lower in banking services, and few cooperatives remain at the highest level of efficiency over time in both models.

Social implications

Credit unions provide an important service in the banking and credit market. Therefore, understanding its operation and the characteristics that influence its efficiency allows a better management of the cooperatives themselves and a greater understanding of this important segment of the financial market.

Details

RAUSP Management Journal, vol. 55 no. 3
Type: Research Article
ISSN: 2531-0488

Keywords

Article
Publication date: 1 December 2003

Deborah Ralston and April Wright

Sound lending procedures in retail financial institutions involve identifying high‐risk applicants, modifying loan conditions such as security requirements, and monitoring…

2786

Abstract

Sound lending procedures in retail financial institutions involve identifying high‐risk applicants, modifying loan conditions such as security requirements, and monitoring repayments post‐loan approval. For managers of credit unions, this procedure is complicated by the need to achieve balance between the institution’s social objective of improving loan accessibility so members can attain lifestyle goals and the possibility of reducing the institution’s viability through loan default. The results of our survey of Australian credit unions, in which 70 per cent of respondents reported experiencing some bankruptcy‐related default on personal loans, indicate managers do not impose more stringent lending conditions on high‐risk borrowers. However, social and viability objectives could be better balanced through careful loan monitoring and timely arrears practices.

Details

International Journal of Bank Marketing, vol. 21 no. 6/7
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 1 July 2001

Anthony T. Allred

Service quality in the USA has become a frustrating and unsatisfying experience. Recent indicators suggest customer satisfaction with service has been steadily declining. The…

3415

Abstract

Service quality in the USA has become a frustrating and unsatisfying experience. Recent indicators suggest customer satisfaction with service has been steadily declining. The financial services sector is no exception. Existing research indicates credit union customers are more satisfied with service quality than bank customers. Current studies also suggest service quality and employee satisfaction are linked to customer satisfaction. Surveys were administered to bank and credit union employees about service quality they receive from their managers. The results did not support the study’s hypothesis that credit union managers would receive higher scores than bank managers. However, the results and implications are important for researchers and practitioners interested in improving service quality at banks and credit unions.

Details

International Journal of Bank Marketing, vol. 19 no. 4
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 1 February 2001

Andy Mullineux and Ed Mayo

This paper reviews the current regulatory framework for community development financial institutions (CDFIs), which aim to enable ‘socially excluded’ people and enterprises to…

Abstract

This paper reviews the current regulatory framework for community development financial institutions (CDFIs), which aim to enable ‘socially excluded’ people and enterprises to access finance. Its focus is primarily on the UK, though account is taken of developments in other EU member countries and at the EU level. In the UK the most developed regulations relate to industrial and provident societies, which are essentially financial cooperatives lending to small enterprises and not for profit organisations, and credit unions, which tend to concentrate on personal savings and finance. CDFIs lie on the boundary of what is currently understood to be charitable status, but the Charity Commission announced a new charitable purpose, ‘community capacity building’, in December 2000 and committed to developing clear guidelines on the charitability of CDFIs by the end of 2001. Current regulatory arrangements are assessed and it is found that, apart from credit unions, which have been brought under the supervisory wing of the Financial Services Authority, CDFIs tend to operate in a context of ‘benign neglect’. While recognising that heavy‐handed regulation might stifle growth, it is argued that the downside of neglect could be uncertainty, which might also blight the development of the sector. An alternative, relatively liberal, regulatory framework is proposed, including self‐regulation for the smaller institutions via associations. It is concluded that the type of regulation should vary with the size, status (mutual vs non mutual), and source of finance (deposits vs risk capital).

Details

Journal of Financial Regulation and Compliance, vol. 9 no. 2
Type: Research Article
ISSN: 1358-1988

Article
Publication date: 1 February 2000

Anthony T. Allred and H. Lon Addams

Bank and credit union customers were surveyed to determine bank and credit union service quality performance. The results of our study indicate that credit unions rate…

3384

Abstract

Bank and credit union customers were surveyed to determine bank and credit union service quality performance. The results of our study indicate that credit unions rate significantly higher than banks on 11 of the 14 service quality questions: access; courtesy; communication; credibility; security; empathy; tangibles; basic service; fairness; fixing mistakes; and guarantees. The findings also indicate that neither banks nor credit unions do a good job of surveying customer needs or retaining customers. Other results indicate that 50 percent of total respondents surveyed reported that they had stopped using a financial service provider because of poor service performance. The vast majority of that group reported that their decision was made because a bank failed to provide adequate service.

Details

Managing Service Quality: An International Journal, vol. 10 no. 1
Type: Research Article
ISSN: 0960-4529

Keywords

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