Credit unions looking at becoming banking ‘third force’

Ireland’s credit union movement is examining ways it could position itself as a viable “third force” to the two pillar banks, by adopting a new structure akin to that of co-operative banks across Europe.

The Irish League of Credit Unions (ILCU) has appointed management consultant Eddie Molloy to undertake a review of the movement, and present the report at the association’s AGM next April.

The new structure could be similar to that of co-operative banks such as Rabobank in the Netherlands, which consists of 123 local-member Rabobanks. Under such a model there would be more co-operation and standardisation between ILCU's 352 or so credit unions, with loan decisions, for example, potentially centralised.

“It would do lots the same, and do lots differently,” said ILCU chief executive Ed Farrell of a potential new structure, adding that while the back office might be different it wouldn’t impact on the experience of credit union members across the local branches.

In terms of capital requirements, Mr Farrell noted that credit unions would need to have €1.3 billion in excess capital to transition to this structure, but noted that credit unions have almost €2 billion in excess capital.

“We have the capital to do what we want,” he said.

The move comes as the sector continues to lobby the Government over new Central Bank regulations it deems to be unfair. They say they restrict credit unions from increasing the range of services they offer.

Due to come into practice in January 2016, the rules carry over lending restrictions from 1997 that allow only 10 per cent of credit union loans to have a term of more than 10 years. This restricts any “meaningful move” into larger loans while also restricting credit union members from keeping more than €100,000 on deposit, said Mr Farrell.

Changing the structure of the credit union movement may be one way for the sector to modernise and expand its range of services, as it could be easier for the Central Bank to oversee one centralised co-op bank rather than 350 or so disparate unions. Industry leaders say the movement’s ethos won’t be changed by such a move.