‘Bullet’ loans are ammunition for Killorglin Credit Union’s critics

It is not the scale of the financial problems revealed on Thursday at Killorglin Credit Union (KCU) that is worrying: it only needed to raise €3.1 million to meet regulatory ratios. Rather, it is their depth.

Following a High Court order by the Central Bank, KCU was subsumed into Tralee Credit Union, which got a payment of €2.1 million for its troubles. The application came after a secret four-year engagement with regulators to salvage its balance sheet.

The pre-2010 board oversight of KCU appears to have been astoundingly poor, based upon the evidence presented to the High Court. How representative is this of other credit unions around the country? Here’s a few contenders for their “what were they thinking” compendium of the boom years. KCU shelled out €5.4 million acquiring and developing a shiny new premises for itself before things went bang. Bear in mind, Killorglin has a population of just 2,000 people. It is now valued at €450,000 and the 92 per cent writedown trashed KCU’s capital reserves. Between 2008 and 2010, it gave out €3 million worth of five-year “bullet loans” – advances where no interest or capital repayments at all have to be made for a specific period or until the loan matures – to 93 different individuals, including some of its directors and staff.

Bullet loans are high-risk stuff and should have practically no place in a small, rural credit union. A report prepared for by accountants sent in by regulators concluded that KCU’s board “didn’t seem to fully understand” the risks involved with holding so many of these type of loans. KCU’s merger with Tralee ensures that no member of the credit union lost money. But money has been lost, and someone else always seems to pay the price for ineptitude within the Irish financial sector.