Credit unions to call for taskforce to help sector over lending

Lender representatives to urge Minister of State to back the setting up of new policy

Credit union representatives will urge Minister of State Seán Fleming in a meeting on Thursday to back the setting up of a policy taskforce to develop a sector that has been dogged for years by excess customers and regulatory restrictions on certain types of lending and muted credit demand.

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.

However, current 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, according to David Malone, acting chief executive of the Irish League of Credit Unions, one of the representative bodies attending the meeting.

Still, the Central Bank highlighted on Thursday a speech made last weekend by Patrick Casey, registrar of credit unions, which emphasised how actual mortgage and business lending remains well below available capacity.

“At 30th September, 2021, the total of house loans outstanding was €260 million (or 10 per cent of maximum capacity), and the total of business loans outstanding was €128 million (or 5 per cent of maximum capacity),” he said.

Mr Fleming, who is responsible for policy in financial services, told the Seanad last week that he plans to bring legislative proposals to the Cabinet “shortly” to live up to a Programme for Government commitment to review the wider legal framework around the sector.

However, he has made clear that they will not include any specific proposals to change regulations or regulatory limits.

Fully engage

“Credit unions cannot reach their potential and become a key provider of community banking, as committed to by the Government in the Programme for Government, with such restrictive lending limits,” said Mr Malone. “We see the establishment of a credit union policy taskforce, which we fully engage with, as the appropriate body to carry out this review, ensuring policy is not developed in a vacuum.”

He said the taskforce should include credit union representative bodies, the Central Bank, and the Department of Finance.

The three continuing Irish banks accounted for 69 per cent of mortgage drawdowns in the market last year, with remainder primarily held by KBC Bank Ireland and Ulster Bank, who are withdrawing from the State.

The SME lending market is similarly highly concentrated with the top three banks, including Ulster Bank, holding 90 per cent of the market share.

Savings across the credit union sector rose by 2.8 per cent in the 12 months to September to €16.8 billion, according to a Central Bank report published in December.

While credit unions participated in a wider recovery in credit demand in the Republic amid a phased reopening of the economy over the 12 months, the average player in the sector had just €27.10 out on loan for every €100 of assets as of September, close to historically low levels.

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.