Credit union law plans ‘no silver bullet’, says Minister

Residential retrofit lending ‘best opportunity’ for credit unions to grow

Minister of State with responsibility for financial services Seán Fleming said the planned credit unions legislation he is working on contains “no silver bullet” for a movement weighed down by excess deposits and muted lending, and that it is mainly up to the sector to help itself.

Mr Fleming said he hoped to pitch the heads of a Bill next month to Cabinet, aimed at enabling credit unions to co-lend and collaborate more. It follows up on a programme for government commitment to review the wider legislative framework around the sector.

“There is no legislative silver bullet for the credit union movement. All we can do is pass legislation to enable them to lend. The only silver bullet is to lend more and that’s up to members of the movement themselves,” Mr Fleming said.

The average credit union in the sector in the Republic had just €27 out on loan for every €100 of assets as of September, close to historically low levels, according to figures published late last year by the Central Bank.

The ratio is down from 49 per cent in 2007, and ranks among the lowest across credit union movements worldwide. The optimal loan-to-assets ratio is widely viewed to be about 50 per cent.

“Some credit unions have ratios of as high as 64 per cent, but others are as low as 14 per cent,” Mr Fleming said.

Restrictions eased

The Minister said he hoped that credit unions "rise to the challenge" in the coming months to attract current account business from individuals who have traditionally banked with Ulster Bank and KBC Bank Ireland, as the two overseas lenders exit the market.

The Central Bank eased lending restrictions in early 2020 to allow credit unions to engage in more longer-term lending, including home mortgages and business lending.

Current Central Bank lending limits mean that the sector can effectively only offer a maximum of 3 per cent of all mortgage loans being written in the State and less than 10 per cent of SME loans.

However, the regulator highlighted in March that mortgage lending across the sector was running at only 10 per cent of the maximum capacity as of last September, while business lending was about 5 per cent.

The planned new legislation aims to make some amendments around the area of credit unions’ common bonds, where members of community unions must be from a certain area. A relaxation of common bonds would allow credit unions to introduce business to larger credit unions and potentially co-lend on projects.

Wider services

Kevin Johnson, chief executive of the Credit Union Development Association (Cuda), said that by modernising the common bond, "credit unions will be able to provide services to more people and small businesses and to ultimately provide greater support to their communities".

The number of trading credit unions in the State has fallen by half since 2006, to 214 as of last September, amid rapid consolidation in the sector following the financial crisis. The number of credit unions with at least €100 million of assets increased 40 per cent to 66 in the past five years.

Mr Fleming’s planned legislative changes also involve the establishment of corporate credit unions, which would allow a group of credit unions take equity stakes in a new corporate entity that would enable them to share resources and opportunities.

“Some credit unions wouldn’t like to amalgamate with others for historic reasons but they’re also aware that they’re not in a position to provide certain services,” said Mr Fleming. “This provides an in-between option.”

Mr Fleming said he believed the “best opportunity” credit unions have to lend is by providing unsecured lending to households looking to improve the energy ratings of their properties through retrofitting, with the aid of Government grants.