Credit union sector recovers but loan demand is sluggish

The Irish credit union sector continues to recover from the crash but at a slow pace, with demand for loans remaining sluggish and the low interest rate environment acting as a brake on profitability.

The Central Bank’s latest review of the sector reveals that after a significant period of restructuring, involving smaller credit unions transferring their business and members to larger ones, the number of registered unions now stands at 311, compared to 428 at the end of 2006.

Currently, there are 286 actively trading credit unions with assets of nearly €16 billion.

Loans and advances have been increasing since 2014, and in 2016 sector lending increased by just under €337 million on the previous year.

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On the funding side, members’ savings have continued to grow – up from €12.5 billion at the end of September 2015 to €13.3 billion at the end of September this year .

Average arrears reported, while still high, have shown a decreasing trend, falling from 13.5 per cent of total loans in 2015 to 9.7 per cent in 2016.

The review shows the sector’s average rate of arrears stands at 10 per cent of gross loans outstanding for September 2016, which equates to approximately €360 million in total sector loan arrears greater than nine weeks. This is down from 18 per cent in 2011, which equated to approximately €1 billion in loan arrears at that time.

Arrears

However, the report cautioned that despite the fall in average sector arrears, this masked “considerable variation” among credit unions.

“While the figures for 2016 show evidence of some recovery including growth in lending, the challenge remains that, without other changes including development of products and services, credit unions are unlikely to develop sufficiently to ensure a sustainable business model into the future,”Anne Marie McKiernan, registrar of credit unions, said.

Kevin Johnson, chief executive of the Credit Union Development Association (Cuda), which works with more than 40 of the larger credit unions, said the report reveals the sector is well capitalised and well positioned to develop a broader range of products and services, but there are impediments, primarily legislative and regulatory, that need to be worked through.