Credit unions being 'monitored closely'
The European Commission is “closely monitoring” Ireland’s credit union sector, EU commissioner Olli Rehn said yesterday, as a report warned that credit unions could have a negative impact on the country’s deficit in the coming years.
The European Commission’s winter economic forecast published yesterday predicts that Ireland’s fiscal deficit is expected to come in at 7.3 per cent of GDP this year and 4.2 per cent next year, but these figures could be increased due to financial sector support measures, including the resolution of certain credit unions.
“We are looking at this issue and monitoring concerning the credit unions in Ireland,” EU commissioner for economic and monetary affairs Olli Rehn said.
A spokesman for the Department of Finance said that a fund of €500 million to recapitalise credit unions had already been put aside in cash terms, and last year’s budget had outlined how this could be drawn down in the years between 2013 and 2015. He noted that the overall outlook for Ireland was positive.
According to the Central Bank, credit unions had loan arrears of €1 billion at the end of 2011, while 10 per cent of credit unions did not meet the regulator’s reserve requirement in September 2012.
The credit union sector has faced a major overhaul in recent years, as it has struggled with the problem of defaults and arrears since the onset of the financial crisis.
New legislation governing the sector was enacted late last year, which gave effect to many of the recommendations of the final report of the Commission on Credit Unions.
This included the setting up of “Rebo”, the Credit Union Restructuring Board, a statutory body which aims to restructure the sector by 2016. The Central Bank has enhanced powers of regulation over the sector. Just over a year ago, the Central Bank appointed a special manager to Newbridge Credit Union amid concerns about the credit union’s financial position. The High Court recently granted an extension to the appointment.
Earlier this week, Fianna Fáil leader Micheál Martin claimed that credit unions could lose up to €17 million as a result of the promissory note deal, as many credit unions had funds on deposit with Anglo Irish Bank.
There are also concerns that credit unions could be particularly affected by the Personal Insolvency Bill, which allows for the writedowns of loans up to €20,000 in some cases.
There is widespread expectation of extensive consolidation in the sector, which could reduce the number of credit unions in the country by up to 50 per cent. There are 404 credit unions in the Republic with some three million members and assets of about €14 billion.