By Ray Birch
SAN JUAN, Puerto Rico—As thousands of Puerto Rico residents flee the battered island in the aftermath of Hurricane Maria, it’s not yet time to be concerned for the future of credit unions that serve this U.S. territory—nor their impact to the NCUSIF—analysts say.
Puerto Rico is home to eight federally insured credit unions that total $761 million in assets. There are also 116 cooperatives regulated by Puerto Rico that account for about $8 billion in assets.
Despite what is expected to be a continued exodus of people on par with that seen in New Orleans and surrounding areas following Hurricane Katrina—eventually totaling hundreds of thousands—analysts believe that while some credit unions may fail, the large majority will be left standing and play key roles in rebuilding Puerto Rico’s infrastructure and economy.
There’s still little power on the island where the power grid must be rebuilt. In many places, there’s no water to drink or bathe in or to flush toilets. There’s limited food and cell service, and dozens of remote villages have been completely cut off from everything for weeks. As residents flee to the U.S. mainland for better living conditions and jobs, many are expected to never return.
NCUA Forebearance?
“I suspect NCUA will engage in regulatory forbearance,” Keith Leggett, former senior vice president and senior economist at the ABA, told CUToday.info. “This will give the agency time to assess the financial conditions of these federally insured credit unions.”
Clearly, the loss of residents due to migration from the island will impose additional hardship on Puerto Rico's credit unions, emphasized Leggett.
“NCUA will probably look at merging the weaker credit unions with stronger institutions, especially some mainland credit unions with operations on the island,” assessed Leggett. “It is premature to predict the impact to the NCUSIF, but any losses should be manageable.”
Keith Leggett
Leggett said that the bigger concern is the island's cooperatives, which are insured by the Public Corporation for the Supervision & Insurance of Cooperatives in Puerto Rico (COSSEC, Spanish acronym).
“COSSEC is responsible for overseeing and insuring the island's 116 credit unions or cooperatives,” said Leggett. “These cooperatives are exposed to Puerto Rican bonds and may have liquidity problems.”
NCUA declined to comment on the potential impact to credit unions from the exodus of locals, and the potential hit to the NCUSIF from failures. The agency, however, provided an update on the status of federally insured CUs on the island.
As of Monday, four of the eight federally insured credit unions in Puerto Rico were fully operational, and the other four were partially operational—open but with reduced hours. Some credit unions are using generators for power, and several are making arrangements to get a generator, NCUA said.
“Credit unions are working together to help one another with resources, from Internet service to cash, and they are trying to work with members who are understandably having challenges,” said spokesperson John Fairbanks.
Perfect Storm
Puerto Rico is facing a “perfect storm” as a result of their financial crisis and the recent natural disasters, which have forced many people to migrate to the U.S. mainland, noted Pablo DeFilippi, VP of membership and business development at the Federation of Community Development Credit Unions.
“At 3.7 million, the current population is back to its 1990 levels and while the drain in the workforce and the loss of talent will have a significant impact on Puerto Rico, the island has historically demonstrated its resilience,” he said.
The important point to consider, said DeFilippi, is that Puerto Rico has a “vibrant” credit union network.
In addition to the eight federally chartered and insured credit unions in Puerto Rico, there are also 116 Cooperativas de Ahorro y Credito (CACs) serving more than one-million members with aggregate assets of over $8 billion that are regulated by COSSEC, “which means they don’t represent any risk to the NCUSIF,” said DeFilippi.
DeFilippi recognized the severe challenges in front of all the island’s credit unions.
“It’s likely that some won’t make it,” he said. “But they are a lifeline for many of the communities they operate in. Out of the 78 municipalities in Puerto Rico, 17 are currently being served exclusively by CACs, and, not surprisingly, they happen to be the most rural ones. These institutions become the backbone for the rebuilding process. In the midst of disaster, I see opportunities.”
CUs To Play Key Role In Recovery
DeFilippi is confident that Puerto Rico will rebuild and become stronger, both in its infrastructure and economy. “And credit unions here will play a key role in the redevelopment process. Credit unions are such a big part of these communities.”
However, DeFilippi added, it is much easier for residents of Puerto Rico to leave the island and migrate to the continental U.S. since they are already U.S. citizens.
“They do have greater mobility than residents of many other nations that are struck tragically by natural disasters,” he said.
DeFilippi pointed out there’s a sizable Puerto Rican diaspora in the continental U.S.
“Over five million, I believe, and the financial resources they mobilize has mitigated the real impact of the financial crisis in Puerto Rico so far,” DeFilippi said
The new wave of immigration from the island is aimed at Florida, DeFilippi said.
“With over one-million Puerto Rican residents, Miami will soon surpass New York in terms of having the largest concentration of Puerto Ricans,” DeFilippi said. “That also represents an opportunity for credit unions that understand the Hispanic market. For CUs in Florida and the northeast, they should be paying attention to this market and one way to do it is by pursuing the Juntos Avanzamos designation. This is a Hispanic outreach program developed by the Texas CU League more than a decade ago and taken national by the Federation at the end of 2015.”
Dennis Dollar
DeFilippi added that the Federation has been supporting the National Credit Union Foundation and the New York CU Association CUAID platform to channel immediate relief funding to credit union employees and volunteers in Puerto Rico.
“We plan to intensify those efforts and then, in a second phase, identify resources to strengthen the financial cooperative system so that credit unions can become engines in the economic revitalization of Puerto Rico,” he said.
Too Soon To Tell
Dennis Dollar said it is too early to know the long-term impact of the hurricane on credit unions in Puerto Rico.
“Hurricanes don’t blow away character, and it is character that determines whether someone pays their loan,” said the former NCUA chairman and principal at Dollar Associates. “There may be some increased delinquencies as folks put their lives back together, but there is often an economic surge with the construction, repair and renovation work that follows major storm damage. Just as following Katrina and other natural disasters, people are resilient and those with character pay back their loans—even if they temporarily fall behind a payment or two as they are pulling their lives back together.”