Credit unions could triple longer term loans after Central Bank relaxes rules
New regulations permit mortgages of up to 35 years after consultation feedback
The Central Bank has issued new lending rules for credit unions that will come into effect from 2020. Photograph: Alan Betson / The Irish Times
Credit unions are poised to double or even triple their lending in some sectors after a relaxation of Central Bank restrictions, according to the industry group Credit Union Development Association (Cuda).
The Central Bank on Thursday confirmed the new regulations that will facilitate an increase in longer term lending by credit unions, including home mortgage and business lending, from January 2020.
The bank has removed the maturity limits that cap the percentage of credit union lending that can be outstanding for periods of greater than five of 10 years. The limits have been replaced by new maximums for home mortgage and business loans expressed as a percentage of total assets.
The Central Bank said the changes provide financially strong and capable credit unions with the flexibility to undertake increased levels of longer-term lending.
Cuda, which lobbied for reform of rules, welcomed the alignment of loan volume with asset size and said the regulations would bring “much needed competition” to the financial services market.
“The regulations will allow many credit unions to do more loans for more people,” said Cuda chief executive Kevin Johnson.
But Mr Johnson said he was disappointed that credit unions would be prohibited from supporting aspects of Government housing policy, such as the Repair and Leasing Scheme, saying there was “no logic” to this.
“We are also disappointed by the limit put on the number of business loans a credit union can do in a time when many credit union members are small business that are crying out for funding.”
He added that Cuda members were “ready and willing to help do more in filling the void for business loans left by banks”.
The Irish League of Credit Unions also welcomed the removal of existing loan limits , but described the changes as “conservative”.
ICLU chief executive Ed Farrell said that while the new regulations would allow credit unions to become more significant players in the mortgage market, more leeway was needed. He said the changes “do not fully enable us to develop diversified loan portfolios at the required scale”, adding that the ICLU would continue to engage with the Central Bank on the issue.
The new regulations follow a period of consultation on the lending framework for credit unions.
A review of the submissions led to the Central Bank withdrawing some proposed secondary limits for mortgages and adjusting another proposed measure that might have prevented credit unions from offering appropriate loan restructuring to mortgage borrowers experiencing repayment difficulties.
The bank also agreed to extend the maximum loan maturity on secured loans from 25 years to 35 years.
There are three tiers of lending limits under the regulations. Credit unions will be permitted to offer longer term house and business loans up to a base level of 7.5 per cent of their total assets.
Up to 10 per cent may be available to credit unions who meet certain criteria on asset size and regulatory reserves and notify the Central Bank in advance, while up to 15 per cent may be available for credit unions with total assets of at least €100 million subject to an approval process.
“It is important that the lending framework remains appropriate for credit unions taking account of their risk management, capabilities, expertise and financial resilience,” said Patrick Casey, the registrar for credit unions.
“Where credit unions wish to undertake increased house and commercial lending, it is important that they understand the risks involved.”