Study points to ‘benefits’ of Credit Unions in mortgage market

A report prepared for the Irish League of Credit Unions (ILCU) says there are considerable benefits to the participation of credit unions in the mortgage market. The study identifies four key areas of investment opportunities for credit unions: mortgages, social housing investment, corporate loans for small and medium-sized enterprises (SMEs) and an expansion of the personal micro-credit scheme.

The report suggests that engaging in residential mortgage lending is a relatively efficient solution to increase loan-to-asset ratios and to diversify Credit Union loan books. "The participation of Credit Unions in mortgage lending is very important from a market diversification and financial deepening perspective. The mortgage lending market in Ireland has become concentrated in a very small number of lenders, leading to lack of choice and competition for consumers," said Dr Ciarán Mac an Bhaird, the report's author.

The ILCU is working on a model of mortgage lending that meets the approval of the regulator and is attractive to credit unions willing to expand into this market, according to a statement from the group.

Corporate loans

Another area of opportunity signalled in the report is the possibility to offer corporate loans to small and medium-sized enterprises. Credit unions are said to have a better understanding of the risk profile of their customers due to having better access to local knowledge. The focus in this category would be loans in the region of €10,000 to €20,000.

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The report identifies personal micro-lending as an area in which credit unions can expand. It points out that the current scheme has resulted in an increase of 42 per cent in credit union membership. It also notes that the initiative has tremendous social and community benefits.

In a pilot microcredit scheme launched by the Credit Union in 2015, more than two-thirds of loans were for amounts less than €500 and repayment rates were relatively high, with arrears calculated at 4.3 per cent.

Speaking ahead of the ILCU annual general meeting, the organisation’s president Brian McCrory said, “In tackling the scourge of money lenders, we are living up to our ideals in deprived communities and in hard-pressed households. Today we stand ready to be a vehicle for lending for social housing, for lending to SME’s and for mortgages.”