Puerto Rico’s credit unions stare down another hurricane season
After a devastating 2017, the 2018 hurricane season is officially under way. And in Puerto Rico – which was hammered last summer by Hurricane Maria –the good news for credit unions is that the lights are on, branch traffic is up and, in some instances, loan demand is high.
But that’s pretty much where the good news ends.
While most credit unions on the island – both mainland-based institutions and cooperativas based in Puerto Rico – have largely resumed close-to-normal operations, plenty of challenges remain. For the cooperativas, many are relying on solar power to help them reduce or eliminate the huge expenses incurred by running on diesel-power generators, said Pablo DeFilippi, SVP of membership and network engagement at the National Federation of Community Development Credit Unions.
Also, unemployment in Puerto Rico remains high – 10 percent – but DeFilippi countered there are “strong hopes” that once funding from Federal Emergency Management Agency starts pouring in, it will generate an economic boom, particularly in the construction sector. (FEMA approved $2.2 billion for Puerto Rican households and businesses).
“The biggest challenge for the credit unions is dealing with the economic aftermath of the hurricane,” he said. “Many businesses had to shut down their operations, some temporarily and others permanently.”
And that, he added, is impacting CUs across the island.
“Since local credit unions already operate in economically vulnerable markets, their earnings have been affected by higher delinquency rates due to unemployment,” DeFilippi explained. “Loan demand is also weak as people are being more cautious and postponing purchasing big-ticket items.”
However, on the positive side, the local credit unions experienced “significant growth” the last quarter of 2017, DeFilippi assured. “Consumers recognized that these institutions did all they could to resume operations and became a lifeline in many communities,” he said. “While bank branches stayed closed for months, the cooperativas were up and running, even when their premises had been damaged and their personnel affected.”
Still, there are concerns about the future and the inevitable next wave of hurricanes.
“Reduced earnings limit the credit unions’ ability to better prepare for the next big storm, but these institutions can’t afford to shut down,” DeFilippi noted. “They view that as a responsibility to their members and community at large.”
It’s not just the local cooperativas that have had to deal with a “new normal.” So too have mainland-based CUs like Baxter Credit Union. The $3.1 billion-asset institution is based in Vernon Hills, Ill., near Chicago, but operates eight branches across Puerto Rico.
According to John Sahagian, VP marketing & member intelligence, all branches are fully operational, fully staffed and running normal business hours. Branch traffic has also been up, he said, with increased deposits and strong demand for loans.
“If anything, we’ve seen an increased need for our credit union services since the storm and have worked tirelessly to help support our members on the island as they recover and rebuild,” Sahagian observed. “We recognized right away that the impact on our members and the island would be devastating and that they would need our help to recover quickly. We immediately went to work with our local insurance partners to ensure our members’ homeowner and auto claims were expedited, provided access to emergency loans, waived ATM and account fees, and automatically deferred loan repayments for 90 days. The result was an inflow of deposits from claims checks, as well as relief funds received from family members, FEMA and other sources.”
BCU has also seen an increased need for auto and personal loans to replace lost cars and damaged property. “Our next priority was to then make sure we were adequately prepared and sufficiently staffed to process deposits and loans quickly to ensure we could give members access to the funds they needed to make purchases and repairs,” Sahagian said.
With the 2018 hurricane season already underway and more severe storms likely, Sahagian said BCU’s facilities and operations are ready.
“We have a robust business-continuity plan with key roles and responsibilities identified in both Puerto Rico and the U.S. mainland,” he elaborated. “Like all of the island in the immediate aftermath of Hurricane Maria, the biggest issues we had to work through were re-establishing power and communications/data connectivity. Today, all BCU branches are equipped with generators and we are exploring new data redundancy capabilities.”
Sahagian pointed out that while Hurricane Maria was particularly severe, Puerto Rico is no stranger to surviving hurricanes. “Much like the concrete construction of all of our branches, the bravery and optimism of our employees and people on the island will stand strong even in the face of even the worst storms,” he added.
No longer once-in-a-lifetime
Local credit unions are also making their own preparations. According to DeFilippi, cooperativas on the island are now working under the assumption that category 4 hurricanes are no longer once-in-a-lifetime events. On top of that, because the local electrical grid continues to be vulnerable – with many localities still without power – cooperativas “are investing precious resources in back-up generators and redundancy systems. A growing number is also turning to solar power and are installing solar panels on their facilities. They’re counting on that investment to be able to keep their operations running in case they face power disruptions in the future.”
DeFilippi indicated that whole most facilities have been “completely repaired,” priority has been given to fixing or reinforcing critical infrastructure over more cosmetic repairs such as lobbies and offices.
Individual credit unions across the country – along with industry stakeholders such as the Federation, New York Credit Union Association, World Council of Credit Unions, Cooperative Credit Union Association, and the CUAID program from the National Credit Union Foundation – have donated extensively to hurricane relief efforts impacting not just Puerto Rico, but the regions hit by Hurricanes Irma and Harvey, as well. Through CUAID program, more than a half-million dollars was distributed to employees and volunteers at local credit unions to help them recover.
“We’re seeing the emerging of a broad response from the U.S. credit union system to help strengthen Puerto Rico’s credit union network,” said DeFilippi.