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Assessing, Rating Earnings and Measuring Solvency of Financial Co-operatives

Assessing, Rating Earnings and Measuring Solvency of Financial Co-operatives. Regulator’s Roundtable – Lilongwe, Malawi December 1 – 3, 2010. Sound Business Practices.

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Assessing, Rating Earnings and Measuring Solvency of Financial Co-operatives

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  1. Assessing, Rating Earnings and Measuring Solvency of Financial Co-operatives Regulator’s Roundtable – Lilongwe, Malawi December 1 – 3, 2010

  2. Sound Business Practices • Sound businesses demonstrate a sustained and positive ROAA trend over time that is sufficient to continuously build financial capital in line with business growth. Canadian Co-operative Association

  3. Are the Earnings Sustainable- What’s behind the numbers? • Transparent and locally compliant accounting practices • Proper aging of receivables - PAR • Appropriate expense ratios • Training for staff, directors members • Staff costs • Maintenance and upkeep • Infrastructure investment Canadian Co-operative Association

  4. Profitability ≠ Solvency • Simply stated, if external borrowing exceeds member savings the institution is financial insolvent no matter how profitable it is. • If external borrowing exceeds member’s equity the institution is morally insolvent and at risk of being lost to its members Canadian Co-operative Association

  5. Non financial profitability considerations • Staff turnover • Staff to member ratios • Innovation Canadian Co-operative Association

  6. Aim for consistent ROAA • Increased benefits to members • Better services tailored to members needs • Increased savings rates • Reduced loan rates • Continued relevance to current and future members Canadian Co-operative Association

  7. How are profits used? • Reserves for future growth • Development of new products and services • Maximizing member benefits via highest possible savings rates and lowest possible loan interest rates and service charges • Dividends and patronage refunds Canadian Co-operative Association

  8. Achieving AAA rated ROAA • Sound financial co-operatives demonstrate a sustained and positive ROAA over time while providing the best possible and most competitive services to both saving and borrowing members while building financial and social capital for posterity. Canadian Co-operative Association

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