Credit union home loan prospect greeted with official scepticism

The prospect of a move by credit unions to provide home loans has been greeted with acute scepticism in regulatory and official circles,

The Irish League of Credit Unions, which represents almost 500 local and professional credit unions, said yesterday it was exploring the possibility of offering mortgage financing to members.The league said such a move could be one year away at least,

However, it was made clear in regulatory circles that the credit union sector remains under financial strain and that the league and member credit unions would face very steep hurdles if they sought to embark down such a path

A number of credit unions ran into severe financial trouble in the financial crash. The most notable was Newbridge Credit Union, whose rescuer Permanent TSB has so far received €24.1 million from a maximum €53.9 million allocation from public resolution fund.

In addition, the transfer of Howth Sutton Credit Union to Progressive Credit Union cost the State €2.15 million. The transfer of Killorglin Credit Union to Tralee Credit Union cost a total of €2.15 million.

Despite these settlements, registrar of credit unions, Anne Marie McKiernan, indicated in a speech at the weekend “a little more than than half of all credit unions” are still subject to some form of lending restriction. This includes limits on individual loan size or commercial lending activity and, in a small number of cases, a monthly limit on total lending.

There was no comment on the mortgage initiative from either the Department of Finance or the Central Bank, which is prime regulator of the credit union sector. It is understood no formal submission has been made to the Government or other official agencies.

Questions were quickly raised yesterday over the viability of any move into mortgage financing by credit unions, whose traditional strength is in the market for relatively modest loans for cars, holidays and home-improvements.

In a speech to the Credit Union Development Association on Saturday, Ms McKiernan said loans to credit union members have dropped almost 10 per cent since September 2013 to €4 billion. While she said the average loan-to-asset ratio in the sector is 10 per cent, just over 200 credit unions are below this ratio.

“Total interest income has reduced by approximately 45 per cent between 2009 and 2014. While average sector arrears at end-September 2014 were about 17 per cent, 31 credit unions have arrears exceeding 30 per cent of their loan book,” said Ms McKiernan.

“It is clear that major rather than minor changes in approach are needed to stem this decline,” she added.