Pearls Monitoring System

Publication Date: Oct 2002
Published by: WOCCU - World Council of Credit Unions
Document Type: Paper

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Decoding the PEARLS monitoring system

This document describes the objectives, features and working of the ‘PEARLS monitoring system.

The document states that PEARLS aims to:

• Help managers find solutions to institutional deficiencies;
• Use standardized evaluation ratios and formulae;
• Produce comparative credit union rankings that are objective;
• Facilitate supervisory control.

The document compares the features of PEARLS with those of CAMEL and describes the deficiencies of the CAMEL method of evaluation.

It states that PEARLS is a set of financial ratios in which each letter of the word, PEARLS, measures key areas of credit union (CU) operations as follows:

• P = Protection. Adequate protection of assets is the basic tenet of the new CU model.
• E= Effective financial structure. This is the single most important factor in determining growth potential, earnings capacity and overall financial strength.
• A = Asset quality. A non-productive asset is one that does not earn income. An excess of non-productive assets affect CU earnings in a negative way.
• R = Rate of return and cost. The management can calculate investment yields and evaluate operating expenses with this.
• L= Liquidity. Effective liquidity management becomes a much more important skill as the CU shifts its structure from member shares to deposit savings.
• S= Signs of growth. The only successful way to maintain asset values is through strong, accelerated growth of assets accompanied by sustained profitability.