Credit Unions: What is a dissolution and how much will the Deposit Insurance Fund cover after 2025? The SBS explains it

The Superintendency of Banking, Insurance and AFP ordered this Monday the dissolution of 11 credit unions in the country. This as part of the process that the institution has been carrying out for four years when it was enabled by law. In an interview, Óscar Basso, Deputy Superintendent of Cooperatives, explains the progress in the process and provides details on the steps to follow within the framework of supervision.

– The SBS declared the dissolution of 11 savings and credit cooperatives. What has been the cause?

Some for inactivity, others for not presenting financial statements. This is consistent with a process that took place at the beginning of the supervision of savings and credit cooperatives by the SBS within the framework of Law No. 30822. During the process, we have detected that a good number of small cooperatives, the majority of them, had very few operations and have been ceasing to function.

– What percentage of cooperatives are we talking about?

I estimate that more or less 20% of the registered cooperatives have characteristics like the one I mentioned: very little activity, practically zero deposits. In some cases, they worked in premises that were not their own. Then they fall into the cause of inactivity. It means that if they do not operate, there is no point in continuing to be part of the system.

– What circumstances must be verified to fall into direct dissolution?

Inactivity for 15 business days. On the other hand, if financial statements are not sent for two quarters, the cause for dissolution is also set. Obviously, without these financial statements, there is no light on how the operations have taken place. We are talking about, to date, close to 100 cooperatives that have been liquidated [desde que inició la supervisión].

– How many more cooperatives are under evaluation and could eventually enter a dissolution process?

We can’t give numbers on this case, but we’re pretty far along in the process.

– And are they at the end of the road?

I would say yes, we are at the end of the road. This is a system that has had effective supervision for just over four years, which, in addition, has been through two years of pandemic. We are talking about a short process. Adjusting for a supervision process is quite long and we have only just passed four years. In addition, we discussed that at the time we had close to more than 437 cooperatives.

– The intervention is another process that is within the framework of the supervision of the SBS. In which cases does it apply?

The intervention occurs when, rather, what is seen is a total loss of social capital and cooperative reserve. This is the reason why a cooperative intervenes. This means that the SBS takes control of the cooperative to, as the law establishes, call a meeting of members in which it is stated that there is the possibility of refloating the institution and that for this the cause must be overcome within a period of 30 days. Once the cause has been overcome, it is returned to its partners. If not, the SBS team clarifies the cooperative’s assets to try to make them support the liabilities they have. Among the most important liabilities are, obviously, savers.

– And the majority of cooperatives that have entered into this situation, manage to overcome the cause?

No, most of them do not succeed because they are important losses that cannot be replaced.

*Understand the levels: 1 as large cooperatives, 2-A as medium large, 2-B as medium small and 3 as small.

*Understand the levels: 1 as large cooperatives, 2-A as medium large, 2-B as medium small and 3 as small.

– Let’s talk about the Deposit Insurance Fund for cooperatives. When will it go into operation?

It would start operating in January 2025. Cooperatives have to meet a previous requirement: they have to make their contribution to the Deposit Insurance Fund for 24 months. This has already started and will last until 2025. Cooperatives designate a percentage based on their size.

– What will be the coverage amount?

We did a study of how much the fund should be to cover 90% of all savers. This resulted in S/5,000 for small cooperatives and S/10,000 for large cooperatives.

– Will these be the amounts that will come into effect from 2025?

Yes. Those are the amounts you start with. Let us remember that the Deposit Insurance Fund of the financial sector has been created for more than 40 years. It started with small amounts and grew over time, which is what we hope will also happen with this insurance fund for cooperatives.

“We want the fund to have more powers. That it not only participate when a cooperative is intervened, but also that it can serve to provide lines of liquidity to the cooperatives. We will see how the fund evolves”

Oscar Basso, Deputy Superintendent of Cooperatives of the SBS.

– Do you mean that they are going to update the coverage?

Not initially. We are going to consolidate the fund and we will see that it is more robust.

– How long would this consolidation take?

I consider at least five years. Then we could update the values. In the case of the financial system, it took ten years. The law does not establish temporality.

– What is the universe of clients of the cooperatives registered to date and what are the amounts they have in said entities?

[Coinciden con] the figures we calculate for the Deposit Insurance Fund: more or less between S/5,000 and S/10,000. The universe of customers is close to 2 million.

– After four years of effective supervision, does the SBS perceive that modifications are required in the law?

We believe that the model should not be reversed. We have to engage in more active risk management, which is how a financial institution is normally managed. We have not wanted to enter this issue in the cooperative world because the first thing is to consolidate the institution. What is needed is a transition. In 2024 we will begin to regulate the risk management of cooperatives. We will start with operational risk, which is what helps an institution to correct its own mistakes, to minimize the impact that could come from the systems themselves, from the workers themselves. That will be the first regulatory push, because we have the attribution as SBS to do it.