Credit unions won’t find it easy in tussle with banking Goliaths
IT HAS been a long time coming. News that 30 of the country’s larger credit unions are teaming up to offer current accounts and a range of other banking services is not a new idea. But it has now finally become a reality.
It is good to see the credit union movement getting on the pitch when it comes to expanded financial services. Previous attempts to do this were scuppered by the Central Bank. This time it is all sorted.
While welcome news for credit unions and consumers, it won’t be the panacea some would present it as. The credit union group will collectively have more than 120 branches. This will include ATM services, credit card services and cheaper bank charges. The problem really is that financial services are changing so much. Profitability is not what it used to be.
There are 142 fewer credit unions than in 2014. Of the 246 or so that have survived the post-crash apocalypse, just 109 have assets of less than €40m, and more have assets of at least €100m, with those numbers up to 55 from 28 in 2014. So those remaining are getting bigger. This helps, but they are not necessarily getting the return on assets they would have liked. The industry’s return on assets is just 0.7pc, down from 1.6pc in 2014.
The 30 credit unions behind this move will be among the better-run, more modern and more efficiently managed ones. No doubt they represent a very progressive section of the credit union movement.
But they will have their work cut out. Internet banking, mortgages and mass marketing are the key drivers for banks now. Even with scale, the banks are no longer making the profits on current banking they used to.
A mobile AIB banking van pulling into a town near where I live in Donegal is a sad-looking sight, which illustrates how the market has changed. That town used to have three banks. Now it has one, with limited services and a van a few days a week.
Of course, this should open up new opportunities in rural areas for credit unions, but only if they can get the marketing right and grab younger customers.
Offering these services alone won’t be enough to put a large dent in the retail banking market. However, the new initiative represents a solid step in the right direction.
The Central Bank has presided over a forced cull of credit unions. Many have been pushed into mergers, and regulation has become incredibly onerous, despite the fact the credit unions cost the Exchequer very little in the financial crash.
Retail banks are relying on growth in the mortgage market in Ireland to really drive future growth. The mortgage market continues to grow but not as quickly as the banks would like.
There may be a level of frustration creeping in with the Central Bank’s mortgage lending caps, as shown by the recent comments of AIB chief executive Colin Hunt, who said he would like to see the limits looked at again.
He doesn’t want them abolished. But he did say they have done their job and could be tweaked.
This doesn’t sound like a banker who is delighted with the level of growth in mortgage lending.
After the banking crash, the reputation of retail banks in Ireland was really shattered. Opportunities for alternatives, like your local credit union, seemed very real.
The big banks have huge advertising budgets, even if some of their more asinine marketing lines make you feel a little queasy in light of the crash.
But Central Bank rationalisation of the sector, combined with customer inertia, has seen the main banks hold on to their market share. The real problem is that the business of banking just isn’t as profitable as it once was.
This is reflected in the clapped-out share prices of the main banks.
Credit unions are getting on to this pitch at a tough time. It won’t be easy. But they deserve the best of luck.