Regulator warning to credit unions

 

The new Financial Regulator has warned credit unions to remain vigilant as they brace themselves for another challenging year for the movement.

Mathew Elderfield said credit unions will face further pressures because of the extraordinary economic circumstances facing Ireland and warned they are in the “front line of the battle to ensure these problems are kept at bay”.

Mr Elderfield made his comments in Limerick over the weekend during a speech at the Irish League of Credit Unions AGM.

Some 1500 delegates from 505 credit unions across Ireland gathered at the University of Limerick for the event, which attracted 4,000 people over the two days.

“It is no surprise the Credit Union sector is going to face further pressures because of the extraordinary economic circumstances facing Ireland. The members in this room are in the front line of the battle to ensure these problems are kept at bay,” he said.

In his address Mr Elderfield said the reserves and liquidity position of most credit unions have improved over the last 12 months but warned of worrying developments.

“In a difficult economic environment, credit union loan arrears have risen sharply over the last two years and the level of rescheduled loans has also rise as your members have come under increasing financial strain,” he said.

“2010 will be another challenging year. As your members face difficult times credit unions will have to remain vigilant. The impact of high unemployment and weak economic growth on the credit union sector will be inevitably significant,” he continued.

Mr Elderfield said credit union directors will be required to strike a balance between dividend distribution policy and the retention of reserves to protect members’ savings and “the future of their credit unions”.

During his address, Mr Elderfield also spoke at the weekend of the “clear need” for Ireland to overhaul its approach to financial regulation.

He said he intends to implement a framework of assertive risk-based regulation underpinned by the threat of enforcement but assured delegates at the AGM that the new risk based model would not mean a ‘one size fits all approach’.

As requested by the Minister for Finance the new Financial Regulator is currently carrying out a strategic review of the credit union sector, which Mr Elderfield said would be completed by the end of March 2011.

“Our approach will allow us to differentiate between the firms we regulate. This means that the rules for credit unions will not be the same as those applied to big systematically important banks,” he explained.

The Regulator said that his office will insist that the biggest and riskiest firms manage themselves much better and that firms and their management are held more accountable for their actions.