Covid a challenge to credit unions, regulator says

COMMERCIAL challenges facing credit unions have been made worse by the pandemic, the regulator of the sector said.

Weaker credit unions should link up with larger ones to build strength in the movement, the registrar of credit unions at the Central Bank Patrick Casey told managers of the local lenders at a conference.

And he revealed that credit unions were not yet making use of new rules that allow them to lend more for mortgages and to small companies.

This is despite the sector calling for years for more flexibility around the amount of lending they can do.

Credit unions have been hit by muted demand for loans, and a surfeit of savings.

Excess member savings funds, that are not loaned out, have to be put on deposit in banks where they incur negative interest charges.

But credit unions recently got leeway to loan out more, if they meet certain requirements.

Credit unions are restricted to lending no more than 10pc of their loan book over 10 years.

But they can apply for permission to issue 15pc of their gross loan book with 10-year terms.

Mr Casey said just one credit union has applied to his office for additional lending capacity at 15pc of total assets.

He said there continues to be a lot of commentary in the sector on long-term lending.

But last year there was only a rise of around €36m in mortgage lending and an increase of just €2m in the value of business loans issued.

“This raises questions on the robustness of credit union evaluation of credit demand,” he told the Credit Union Managers’ Association virtual Spring Conference.

He praised credit unions for maintaining a strong reserve position and said the lenders managed to generate a surplus in the year to the end of last September.

“However, the pandemic has accentuated commercial challenges facing credit unions, leading to a growing gap between savings and loans across the sector.”

He again advocated restructuring and business model to ensure the sustainability of the sector. Restructuring provides strategic transfer solutions for weaker credit unions, enabling affected members to gain access to a wider range of services provided by stronger, larger credit unions, he said.

It also offers growth opportunities to build scale and reach for larger credit unions.

He highlighted that advances in technology are bringing rapid and transformative changes to financial services and said that credit unions should use their increased lending capacity to serve their members’ needs.