Credit unions seek scale and profitability in five-way merger

NZCU South, NZCU Central, NZCU Steelsands, Aotearoa Credit Union and NZCU Baywide will merge into a single credit union. Photo / File

Five of New Zealand's credit unions are to merge and create the country's largest single union of member-owned, low-cost lenders as the sector struggles with the cost of new banking software and a recent credit rating downgrade.

The merger of NZCU South, NZCU Central, NZCU Steelsands, Aotearoa Credit Union and NZCU Baywide will create a single credit union with more than $600 million in assets, serving around 75,000 New Zealanders.

All are using the Oracle Flexcube banking software package offered by the unions' national body, Co-op Money. Flexcube provides services equivalent to a Tier One bank, but it has cost more and taken longer to deliver than anticipated and two other large credit unions - First and Westforce - have elected not to use it.

Co-op Money's long-serving chief executive, Henry Lynch, left the organisation earlier this year and the body last month had its credit rating downgraded by Fitch Ratings from BB to B+.

The rating agency cited tight liquidity, weakening capitalisation, and the likelihood that Co-op Money's core operations would remain unprofitable for the next 18 months for the decision.

The credit unions had improved their position by selling their insurance businesses to Pinnacle Life earlier this year, but Co-op Money's "ability to withstand shocks remains limited," Fitch said.

According to the website interest.co.nz, Aotearoa CU had been facing a $2m capital-raising to meet its obligations after installing the Flexcube package, a requirement that the merger appears to forestall.

The Firefighters credit union also uses the Flexcube system and the unions involved in the merger are "open to discussions with others" about joining the enlarged entity, said Andrew Quayle, NZCU Baywide's general manager for sales, marketing and channels.

The merger is subject to member approvals. Assuming completion, "the merged credit union will be positioned as a strong competitive alternative to mainstream banking in New Zealand," Bayside chair Iain Taylor said in a statement.