Credit Unions Across the World Share Common COVID-19 Challenges

The severity of the COVID-19 pandemic differs from country to country, both in terms of the health and economic impacts.

Adding to the complexity for credit union systems is what drives the economy of their country or region – and how their national governments and regulators are responding to the crisis. But as you look deeper, you find that there are commonalities across national borders and regions of the world when it comes to how COVID-19 is impacting credit unions.

Closing of Non-Essential Businesses

From Canada to Australia, Estonia to Brazil, every single country in World Council of Credit Unions’ network has seen some degree of government-imposed shutdowns of non-essential businesses. Invariably, the result has been higher unemployment and reduced GDP.

The response by national governments in more industrialized nations – like Canada, Ireland and Australia – has been to provide some sort of financial assistance to laid off workers and struggling employers. In less developed nations, the government has tried to provide other supports, such as prohibiting foreclosures and evictions until the crisis subsides.

For credit unions, the result of those shutdowns has been a tightening of liquidity as members increase their savings withdrawals, seek deferrals on loan payments and avoid taking out new loans.

While credit unions have been deemed as essential in most countries, that has not been the case everywhere. In Ukraine, credit unions were initially deemed non-essential and closed for a period of weeks before being allowed to reopen. In countries such as the Philippines, provinces were given the authority to decide whether credit unions should stay open, with some choosing to shut them down. In several Caribbean nations, credit unions are considered essential but have been forced by their governments to limit their hours of operation.

Relief for Members

With members struggling due to the COVID-19 crisis, credit unions across the board are starting to offer varying degrees of relief in the form of:

• Loan repayment holidays;
• Interest rate reductions on credit cards;
• Financial counseling; and
• Fee waivers.

However, the concern over liquidity in many countries has caused credit unions to implement some restrictions on members as well, including daily or weekly limits on cash withdrawals and limits on new loans.

Relief From Regulators

As credit unions provide relief for their members, they are also looking to their central banks and national regulators to make relief measures available to them. Credit unions in some countries have seen more assistance than others, with a few central banks and regulators choosing to prioritize the needs of larger banks first.

But in many countries, credit unions are starting to benefit from relief measures put in place by these entities in the areas of:

• Interest rate cuts;
• Emergency loan guarantees;
• Liquidity support; and
• Waivers of interest payments on loans.

The Road Ahead

Finally, no matter where a credit union is located, or how big or small it is, it will have to deal with one looming certainty over the next 12 to 18 months: Reduced financial expectations.

For some credit unions the impact of that will be devastating – it may cause more mergers and consolidation. Others may be forced to lay off employees. Even those credit unions that are well positioned to sustain the crisis will have to freeze new hiring or reduce their loan portfolios for a time.

As the months go by, this reality will come into sharper focus. But we know no matter the severity or length of the recession ahead, the credit union movement will endure because of our focus on serving members to the best of our abilities and putting people over profit.

Greg Neumann is the Corporate Communications Manager for the World Council of Credit Unions in Madison, Mis.