CREDIT UNIONS may be unable to pay dividends on savings in 2009 because of massive writedowns in the value of their investment assets, the Irish League of Credit Unions (ILCU) has warned.
ILCU chief executive Kieron Brennan said the huge fall in investment values would result in substantial writedowns in credit unions’ assets for the financial year ending in September 2009, with the result that “a number” of credit unions would be unable to pay a dividend next year.
“Dividends will be down and in some cases there will be no divid-ends,” said Mr Brennan.
He said there was no question of any credit union being obliged to suspend its services as a result of losses on investment bonds.
About 60 per cent of credit unions typically pay a dividend of 2-3 per cent to savers, with some credit unions paying more.
ILCU president Uel Adair said the financial crisis had transformed what had been “low-risk” financial instruments such as bank bonds into high-risk investments.
Despite the impact of the financial crisis on the 2009 performance of credit unions, ILCU said its annual results for the year ending September 2008 showed that the credit union movement, which boasts 2.9 million members across the island of Ireland, remained robust. Loans advanced to members grew 6.7 per cent in the year to September 2008.
“We expect there’s an element of increased lending because of the unavailability of lending elsewhere,” said Mr Brennan.
Although membership growth slowed last year, ILCU said it was ready to meet the demands of people who have been turned away from cautious banks or those who prefer the movement’s not-for-profit approach.
“There’s an appreciation that we are very different from the banks. We are not out there to fleece people,” said Mr Brennan.
Last year was the first in which ILCU ran a national advertising campaign designed to promote the credit union brand.
The average loan size in the Republic of Ireland increased to €8,860, up from €8,150 the year before, while in Northern Ireland, the average loan size was £3,354.
There was a slight increase in the percentage of loans in arrears, with about 6.5 per cent of outstanding payments more than 10 weeks behind schedule.
Total assets held by credit unions, almost all of which are members of ILCU, grew by 0.2 per cent to €13.9 billion.
This left the overall loan-to-asset ratio at 50.7 per cent, up from 47.8 per cent in 2007.
Savings at credit unions showed no growth, however, standing at €11.9 billion at the end of September 2008. Mr Brennan said this was partly because members with savings had been dipping into them to cope with living expenses as the recession began to kick in.
The ratio of total reserves as a percentage of total assets among the 508 credit unions affiliated to ILCU now stands at 12.16 per cent.
The Financial Regulator is drafting a requirement that this ratio be above 10 per cent on an ongoing basis at all credit unions.
