Exit and Failure of Credit Unions in Brazil: A Risk Analysis

Abstract

This study aims to investigate the factors that affect the market exit of Brazilian singular credit unions from 1995 to 2009; it also identifies and lists the determinants of various types of market exits and analyzes whether profitability is a significant factor for credit union survival. This study was conducted with accounting data provided by the Central Bank of Brazil, which derives only from individual cooperatives, i.e. singular credit unions. Quarterly financial statements from these credit unions that were active from 1995 to the second quarter of 2009 were employed, totaling 71,325 observations for 1,929 credit unions. Based on survival and the model of competing risks (such as the Cox, Exponential, Weibull, Gompertz, and Competing Risk models), the results show that there is no statistical evidence to ensure a correlation between profitability and credit union survival. The results also suggest that the size of credit unions plays a key role in their survival and longevity and that their funding and investment management are related to their survival and risk of market exit. In conclusion, the results confirm the initial idea that the duality inherent to credit unions -cooperative principles versus economic efficiency -might influence the stability, survival, and longevity of these institutions. Such results may also imply that a credit union embracing the rationale of a private bank will become more estranged from its members, something which will hinder its future operations and increase the likelihood of its exit from the market.

Marketing Strategy Planning Based on Customers Expected Services: Evidence from Sharia Cooperatives in Bandung

“…(1) SO Strategy: Enhancing funds from members, business volume, variety of business, improve technology-based services, adding members of different environments. This is according to the results of (Carvalho et al, 2015) research in a study entitled Exit and Failure of Credit Unions in Brazil: A Risk Analysis revealed that cooperative management depends on relations with its members, different from financial institutions others are oriented towards the general public. In other words, the more active and loyal members of cooperatives greater possible acquisition benefits, even though the figures profitability levels become lower; Based on this study, it is not possible to apply a statement that there is a relationship between profitability and lower risk in cooperatives.…”

“…That is, members of the cooperative focus their attention on the relationship between members rather than services. (Carvalho, Diaz, Bialoskorski Neto, Kalatzis, & Finanças, 2015) in a study entitled Exit and Failure of Credit Unions in Brazil: Risk Analysis reveals that cooperative management depends on relations with its members, different from other financial institutions oriented general public. In other words, the more active and loyal the members of the cooperative it is possible the greater the benefits, even though there is a lower level of profitability; Based on this study, it is not possible to apply a statement that there is a relationship between profitability and lower risk in cooperatives.…”

Governance and financial efficiency of Brazilian credit unions

“…The authors then emphasize that increases in the financial and economic performance would provide a relative advantage for credit unions by increasing the availability of resources within the cooperative and the ability to provide loans to the associate members. Carvalho, Diaz, Bialoskorski Neto, and Kalatzis (2015) highlighted how size and management practices might affect the survival and longevity of credit unions in Brazil. The size, proxied by total assets, showed to be strongly associated with lifespan.…”

Survival and failure of Brazilian credit unions: an analysis of corporate governance characteristics

“…Some papers demonstrate the link between discontinuity and performance (a possible proxy for "financial health"). Carvalho et al (2015) determine the financial indicators that affect the longevity of credit unions. In addition, Canassa and Costa (2018) found that the performance of credit unions before discontinuity is worse than those cooperatives that have survived.…”