Directors: Benefits far outweigh potential negatives of imminent merger with Karpaty

Tonci PRUSAC

MELBOURNE - After it was exclusively revealed in a recent edition of the 'Croatian Herald' that the Croatian Community Credit Union (CCCU) was on the verge of merging with the Ukrainian community's Karpaty Credit Union, the CCCU's chairman Milan Cindric was contacted for an interview in order to shed some more light on the burning issue.

The fledgling financial organisation's Board of Directors, instead, courteously replied with a joint statement, answering all the questions put forward by the 'Herald'.

We began by stating that the current situation at the Croatian Community Credit Union must be quite serious for the directors to go down the avenue of exploring the option of merging with the Ukrainian community's credit union, Karpaty.

CROATIAN HERALD (CH): Is that an accurate assumption? Just how serious is the situation at the CCCU?

- BOARD OF DIRECTORS (BOD): Over the past 18 months there has been a large number of credit unions merging. This trend is continuing. Small credit unions are merging to rationalize the back office operations that are becoming very expensive to run. There are massive increases in regulatory requirements and compliance and governance costs. This has resulted in the number of credit unions decreasing from 300+, when we started, to fewer than 120 today. In addition we had planned and budgeted for the Croatian community to come and do more business with us. This support just did not reach the levels needed to ride out the current economic trends. We have too many members with bad loans. Unfortunately these members did not keep up their repayment obligations resulting in collections costs, provisioning and write-offs. A small credit union just cannot absorb such costs.

CH: What are the main reasons for this current poor state of affairs?

- BOD: Primarily not enough members from our community brought their banking business to us. We needed more members to take more deposits and to give out more good loans to.  This has not eventuated despite us offering competitive rates and lower fees. The most significant impact however is the result of too many members not keeping up their loan repayments, resulting in time consuming efforts in calling and collection costs. For a small credit union we have an unusually high number of bad debts and provision for bad debt.

CH: Is this being forced upon the CCCU by APRA or are the Directors suggesting this without being under duress, so to speak?

- BOD: Following a strategic review of the business and the market trends in general, the directors have chosen this course of action. A voluntary merger is supported by APRA and is seen as being in the best interests of the members and viability of the business.

CH: What, would you suggest to your own members, will be the positives of the CCCU merging with Karpaty?

- BOD: The benefits certainly outweigh any potential negatives. There will be an increased  range of products and services, access to ATMs, better facilities,  continued community support and retention of the business name and identity.

CH: Are there are any negatives, or at least any concerns about the proposed merger?

- BOD: The only potential negative is the loss of complete independence, but this will largely be driven by the community and its ongoing involvement with the merged business.

CH: Just how much, shall we say, cultural 'autonomy' will the Croatian half of this marriage retain. For example, who will decide what benefits the Croatian membership and/or community will continue to enjoy from this newly proposed financial institution?

- BOD: Decisions will continue to be made by the directors, based on the influence exerted by the community. Kaparty have the same philosophy as the CCCU has, in terms of supporting the community and maintaining their cultural identity, so we don't anticipate any change in direction on this front. It will be, however, up to the members of the merged entity to exert influence on the directors to ensure that the Croatian community continues to be supported.

CH: Are there any viable alternatives? Is there any likelihood that the CCCU can continue in its own right?

- BOD: As mentioned already, the directors undertook a strategic review of the business and did consider various options but in the end we formed the view that the best option, and the one that will secure the future of the business, was to merge with a similar cultural community.

CH: Are you concerned this merger could result in a massive drop in membership, which is currently hovering around the 1400 mark nationally?

- BOD: On the contrary, we firmly believe the wider product offerings and services will attract more members. Karpaty has been in existence for 30 odd years, so they have existing infrastructure and services that we are just not able to compete with or pay for on our own. The directors recommend the community embrace this opportunity, as the new merged entity will significantly reduce the cost burdens and therefore release money for community projects that has not been available to date on an independent basis.