Dubco Credit Union has had prohibitions on lending since October 2012

One of the country’s biggest credit unions, with assets of €120 million, was issued with five statutory directions by the Central Bank in October 2012, according to its annual reports for 2012 and 2013.

This included ongoing prohibitions on the amount Dubco Credit Union Ltd can lend to its 11,000 members – employees of Dublin City Council, the Impact trade union, the Dublin Institute of Technology (DIT) and other groups.

Dubco said in its annual report it was working to address the Central Bank’s concerns and that it was “fully funded, and all statutory reserves are in keeping with regulatory requirements”.

Dubco chairman Seamus Lea said in the annual reports that his board had been "limited to date in what it could communicate with members".

He said that in August 2012 inspectors were appointed to Dubco by the Central Bank to carry out an inspection and produce a report.

Directions
After this report, the regulator issued statutory directions in October 2012 prohibiting Dubco from making loans to members in excess of €25,000, net of share balance, as well as telling it to stop accepting monies from members of more than €100,000 unless a regular savings contribution was already in place.

The Central Bank also ordered Dubco to appoint a financial controller and to review and document financial management and accounting procedures.

Mr Lea told members that “weekly or more regular” meetings with Central Bank inspectors had taken place and that “significant challenges have been faced, and successfully met”.

He said Dubco had appointed professional advisers to help it, and it now had a financial controller and new member transaction and accounting systems.

The credit union said “significant costs”, including a legal settlement of €500,000 in 2012, “in respect of an IT matter”, as well as professional fees of €250,000 that had to be paid to the Central Bank’s inspectors, and €250,000 to external accountants.

An additional regulatory levy of €68,000 was paid in 2013 and €60,000 was paid for “governance support.”

Borrowings
Mr Lea said borrowings by members peaked at €65 million in 2008 but were now €42 million. He said that, combined with falling investment returns, this was "significantly eroding profitability".

Dubco said it was currently hiring its first chief executive. Its report said: “The current decline in loan demand from members, together with the restrictions imposed on the credit union as already mentioned, contributed to the fall in Dubco’s loan book of approximately €4.7 million in 2012 and €6.8 million in 2013. Unfortunately this trend is set to continue.”

It said that a surplus of €1.3 million was achieved in 2013, but a deficit of €2.4 million was incurred in 2012.

Dubco said that it did not pay a dividend in 2012 to “strengthen” reserves but that it had paid a modest dividend in 2013. Dubco declined to comment beyond its report to members.

Scrutiny
"We cannot comment on individual credit unions," the Central Bank said. "In relation to lending restrictions, all credit unions are required to ensure that they apply scrutiny to all new loan applications.

“Credit unions are also required to ensure that they put in place clear limits on the total funds available for granting loans.

“In order to protect the savings of members, however, it has been necessary to put lending restrictions in place in credit unions where there are regulatory concerns about the operation of these individual credit unions and the resultant risk to members’ savings.”