Oireachtas committee backs easing of credit union lending restrictions

Concerns signalled earlier this year about unions becoming involved in mortgage market

Only 286 unions were classified as actively trading, with the largest 50 accounting for more than half of the movement’s €15.9 billion of assets at the end of last year.  Photograph:  Colin Keegan, Collins Dublin

Only 286 unions were classified as actively trading, with the largest 50 accounting for more than half of the movement’s €15.9 billion of assets at the end of last year. Photograph: Colin Keegan, Collins Dublin

 

The Oireachtas finance committee is set to call for a review of lending limits for credit unions by regulators, throwing its weight behind a key recommendation in Government-commissioned report last year, which questioned the relevance of the sector.

A draft document on the credit union sector by the committee, echoing a report by the Credit Union Advisory Committee last year, said the current level of loans across the sector, at 26 per cent of assets, is “unsustainable” and “requires immediate redress to boost the ratio to the 40-50 per cent ratio that is necessary for long-term viability”.

“The committee identified a greater need for meaningful engagement between the sector and the registrar,” the draft report said, referring to industry regulator, within the Central Bank. “The committee calls on the credit union movement and the registrar to re-commit to constructively engage in proposals that will lend support to a sustainable and reinvigorated credit union sector for the future benefit of Irish citizens.”

Slumped

While the credit union movement escaped forecasts at the height of the financial crisis that it would need a €1 billion bailout, its loans have slumped from 49 per cent of assets in 2007 as borrowers focused on repaying loans and the sector went through massive restructuring.

The number of credit unions in the State had fallen by more than a quarter over the past decade to 311, as of earlier this year, according to a Central Bank report.

Only 286 unions were classified as actively trading, with the largest 50 accounting for more than half of the movement’s €15.9 billion of assets at the end of last year.

Central Bank restrictions include limits to what credit unions can lend to various lines of business and caps that no more than 30 per cent of loans outstanding be for a period of five years and less than 10 per cent exceeding 10 years.

Mortgages

The Oireachtas committee’s draft report said a review of lending limits for certain “qualifying credit unions” to develop and grow and make “necessary infrastructure investment into new areas such as mortgages”.

However, the document noted that then registrar Anne Marie McKiernan had signalled concerns earlier this year about unions becoming actively involved in the mortgage market, given its “high-volume, low-margin nature” and that it already “consisted of experienced players”.

Ms McKiernan was succeeded last month by Patrick Casey as she became the Republic’s representative at the International Monetary Fund.