Rules ‘severely restricting’ credit unions in mortgage market
Central Bank is considering loosening the rules but also says sector could lend more
Irish League of Credit Unions headquarters on Mount Street, Dublin. A recent Central Bank report found assets in Irish credit unions have reached a record high of €17.2bn
The scale of what credit unions can do in terms of lending to small and medium-sized enterprises and the issuing of mortgages to house hunters is “severely restricted” by the Central Bank’s regulations, the sector has said.
The regulator is considering whether to loosen restrictions on credit unions providing home loans. Credit unions in the mortgage market are bound by a general ban on having more than 15 per cent of their loans at more than 10 years to final payment.
Ed Farrell, chief executive of the Irish League of Credit Unions, told the Oireachtas finance committee on Tuesday that while the sector has the capacity to offer mortgages, the scale of its involvement in the market has been limited by the lending rules.
“Credit unions have been moving on,” he said. “Credit unions are now processing electronic payments and issuing mortgages. These are significant and welcome developments, but the scale of what we can do is severely restricted by regulation.”
Earlier, officials from the Central Bank insisted that credit unions “are free” to offer mortgages provided they “have the risk appetite”.
“The credit union sector is already involved in mortgages,” said Central Bank registrar of credit unions Patrick Casey. “They are free to provide mortgages if they have the risk appetite. They don’t need regulatory approval.”
Central Bank deputy governor of prudential regulation Ed Sibley said the regulator was “supportive of further development of credit union business models”.
“The consolidation and strengthening of the sector has seen improved standards in the running of credit unions and their financial resources but further progress is required on embedding governance, risk management and operational capability,” he said.
“Credit unions are already permitted to provide commercial loans but are not currently particularly active in this type of lending. The Central Bank will shortly be consulting on proposed changes to the lending framework for credit unions.
“The proposed revisions also provide increased capacity to engage in both home mortgages and commercial lending for those credit unions with the financial strength, competence and capability to do so.”
Mr Farrell, however, said: “There are rules and limits with the regulations. There is an amount we are allowed lend for longer term loans like mortgages and the bigger loans. Credit unions are emerging and coming into that space after the financial crisis.
“It does take time to develop expertise. A lot of the expertise in credit assessment in terms of mortgages and businesses retired from the sector during the crisis. We are working hard to increase the amount of lending in the home loan and SME sectors.”
Mr Farrell acknowledged there was “capacity within the rules” to offer mortgages, but said the sector needed “some help” in “de-risking” the activity. “It’s about giving us the confidence,” he said.
Kevin Johnson, chief executive of the Credit Union Development Association, said credit unions were “hitting the limits” of what they are allowed to lend.
“We know they are hitting the limits,” he said. “It’s a relatively small number that are getting there but it is growing. There is no point in waiting until we have to shut up shop and then get going again.”
Mr Johnson added that the sector wants to cooperate with the Central Bank. “It’s not all about confrontation with the regulators,” he said. “We want to work together.”
A recent report by the Central Bank found assets in Irish credit unions have reached a record high of €17.2 billion. Total sector loans amount to €4.5 billion, with lending having increased annually since 2015.