Credit unions see Covid surge in savings, adding to their challenges

Deposits up 7% to €16.3bn in year to September

A surge in household savings during Covid-19 saw Irish credit union deposits rise 7 per cent to €16.3 billion in the year to September, adding to the challenges of many firms in the sector remaining in business as loan demand remains muted, according to a new Central Bank report.

Credit unions had just €27 out on loan for every €100 of assets at the end of September, according to the report. The ratio is down from 28 per cent a year earlier and 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.

Loans outstanding across the sector dipped to €5.09 billion from €5.11 billion a year earlier, according to the report. Still, the level of arrears only rose to 4.8 per cent from 4.6 per cent over the period, as credit unions offered payment breaks at the height of the crisis and came up with solutions for distressed borrowers.

"Overall, while the sector has shown resilience in 2020, the economic outlook is uncertain with Covid-19 and Brexit impacts potentially yet to be fully realised," said Patrick Casey, the registrar of credit unions, in the report. "A continuation of the trends identified in this report could see individual credit unions facing sustainability challenges over the medium term."


Many credit unions have imposed limits in recent years on the amount of savings they will accept. One of the lowest is at Malahide Credit Union in north Dublin, which will only accept €10,000, while Progressive Credit Union, also in north Dublin, recently imposed a limit of €15,000.

Many banks are now charging negative rates on short-term deposits accepted from credit unions, as the European Central Bank (ECB) is charging banks for excess cash it accepts from the sector in an effort to get them to lend more in order to boost the economy.

Falling numbers

The number of credit unions in the Republic has fallen to 228 from 406 in 2011, as the industry succumbed to a wave of mergers and sporadic collapses while grappling with a slump in lending and income pressures.

Drumcondra and District Credit Union imploded in July after rescue efforts to fold its business into a stronger peer failed. The north Dublin lender was unable to secure enough funding to bolster its financial position to complete a merger.

The Central Bank eased lending restrictions on credit unions earlier this year to facilitate an increase in longer term lending, including home mortgage and business lending.

"Credit Unions that have digitised their loan marketing, membership and application processes have fared far better during the pandemic, with some seeing little or no reduction in overall loan volumes," said Kevin Johnson, chief executive of the Credit Union Development Association (CUDA).

The organisation is also calling on the Government to consider permitting credit unions to introduce their members to State Savings, where savings are placed directly with the Government. This would alleviate the capital pressure for credit unions, as the savings would no longer be on their balance sheet, while allowing them to continue to deliver important services to their members, it said.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times