Value creation in brazilian credit unions

Abstract

This work aimed at assessing the value creation by Brazilian credit unions for their members. Researchers engaged in developing economic models state that credit unions create value to members by offering advantageous interest rates on loans and savings compared to market alternatives. However, few empirical studies regard the borrower-saver net benefit objective function presented in theoretical models. In this sense, this study seeks to contribute to the field with empirical research that evaluates the performance of credit unions regarding benefits and value for members. Specifically, it assesses Brazilian credit union values based on a dynamic model that considers the inter-temporality of borrower-saver benefits. The model involved comparison between market and credit unions interest rates, as well as individual risk estimation over time, from 2010 to 2018. In one of its chapters, the work estimates individual risks through panel data logistic regression evaluating the probability of failure. The PEARLS ratios system was the basis to estimate risk, but complementary qualitative and macroeconomic variables were also verified and proved to be effective at the estimation model. Among the PEARLS ratios, quality of loans was the most significant variable to explain risk, followed by solvency indicator, external credit, deposits, and growth in member shares. Besides, the model evidenced that small and mixed bond credit unions have higher risk. Furthermore, results also showed significant influence of real percentage change in GDP on risk. Overall, Brazilian credit unions presented a 1.1% of probability of failure in that period. However, some highly risky individuals were observed. Although most credit unions have overcome a critical period of recession, the sector was not immune to it. Having calculated the risk in a subsequent chapter, this work examined benefits and value of credit unions considering the period from 2013 to 2017. The findings evidenced that credit unions have been providing benefits, particularly to borrowers, while benefits to savers were less significant. The inter-temporal framework showed that the sum of credit union values was positive in each semester. Moreover, mean and median values scaled by equity were higher than 1 for each semester. Overall, the mean of intrinsic value to equity was 2.25, considering the entire period studied. Results demonstrated that credit unions were valuable to their members, especially in periods when market interest rates were more unfavorable during the economic recession.