Massive collapse in lending threatens future of our credit unions
:: MEPs appeal to Central Bank for leniency on sector
CREDIT unions are facing pressure to “remain open” despite a collapse in lending.
The Irish League of Credit Unions has revealed that applications for loans are down 80pc compared to last year as the coronavirus pandemic makes people reluctant to borrow.
The news comes as a group of MEPs has written to Central Bank Governor Gabriel Makhlouf calling on him to relax strict regulations on credit unions, affording them the same flexibility shown to banks.
The crisis for the locally owned lenders has led to some of them being forced to lay off staff, with fears for the very existence of some credit unions.
Gerry Thompson, president of the league that represents the majority of credit unions, said the sector was dealing with increased costs at a time when it had been hit hard by the tumbling loan demand and low-level returns from investments.
Credit unions are heavily dependent on issuing loans, with few other sources of income.
They are required by regulators in the Central Bank to put their spare cash into low-yielding, but safe, assets.
Mr Thompson said: “We have seen a dramatic fall in new credit union loan applications of approximately 80pc compared to this time last year, which is not surprising given people’s reluctance to spend during a recession.”
He said that although there had been a slight pick-up in home improvement loans in the past few days, it was not enough to significantly increase credit unions’ income.
“Loan interest and investments are credit unions’ main sources of income and with both sources decreasing, credit unions are coming under pressure to remain open and to continue to provide vital services to their members in these difficult times,” Mr Thompson said in a statement to the Irish Independent.
Mr Thompson said the sector had sought a number of relief measures from the Central Bank and from Government aimed at easing some of these pressures, but had been unsuccessful.
The league wrote to the Central Bank last month accusing it of “not standing with credit unions at a time when credit unions are standing with the communities they serve”.
The representative body for the sector has also contacted all TDs this week seeking their support for the lenders.
Now MEPs, led by Ireland South’s Billy Kelleher, have written to Mr Makhlouf calling for urgent action by the Central Bank to help credit unions weather the Covid-19 crisis.
The letter outlines how the banks have been given a concession during the crisis, allowing them to hold less capital against their assets.
It also seeks a 12-month deferral on €22m in State levies that its 241 member unions are due to pay. One of the levies is to cover the cost of the Central Bank in regulating the sector.
The letter is also signed by Irish MEPs Frances Fitzgerald and Barry Andrews, along with other MEPs.
It states: “Unfortunately, we are alarmed to observe that in many jurisdictions, including the Republic of Ireland, credit unions struggle to secure sufficient support and are being excluded from measures aimed at aiding the banks in the country.”
Mr Kelleher said there had been “far-reaching measures” taken in this country to support banks. But the same could not be said for the credit unions, with only limited guidance provided to them.
The European parliamentarians also want credit unions given a temporary extension to reporting deadlines to allow staff to focus on their customers, and access for credit unions to the Central Bank’s credit refinancing scheme on the same or similar terms to banks.
Mr Kelleher said: “Of course we must maintain robust prudential requirements on our financial sector and we cannot jeopardise financial stability, regardless of how unprecedented this situation is.”
But he said the more than three million credit union members in this State deserved the same protections and the same supports as the customers of banks.
The Central Bank said it had received a letter from the MEPs, and would respond in due course.
“However, it must be noted that the capital buffers released for banks, such as the counter-cyclical capital buffer, were specifically built up so that they could be released in the event of a downturn, and credit unions were not required to build up these buffers above their minimum requirements.
“While Covid-19 has seen a release of certain additional capital buffers applying to banks built up since the last crisis, the minimum capital requirements for both banks and credit unions remain unchanged.”
Finance Minister Paschal Donohoe said in a Dáil reply to Sinn Féin TD Louise O’Reilly that his officials were in weekly calls with the credit union representative bodies and the Central Bank to review emerging issues in the sector due to the pandemic.
The Credit Union Advisory Committee (CUAC) is also meeting weekly. Credit unions had been struggling to increase lending even before the pandemic struck.
Up to last September, they collectively had €18.3bn in assets, but have only managed to loan out €5.7bn of this, according to the latest data from the Central Bank.