Sunday 4 December 2016

Bailing out the credit unions expected to cost taxpayer €500m

Charlie Weston, Personal Finance Editor

Published 16/06/2011 | 05:00

IT is likely to cost the State around €500m to bail out credit unions, with close to 80 -- or one in five -- of them are at risk of closing due to a spike in loan arrears and investment losses.

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A raft of credit unions will be forced to close unless there is a radical restructuring of the sector including mergers and greater co-operation, a leading credit union activist told a conference yesterday.

John Lass of Cuna Mutual, which is the largest insurer in the world for credit unions, told the conference that Irish credit unions could grow by 7.5pc a year but they had to change radically.

Each credit union is owned and operated individually, which is putting strain on some of the smaller ones. Half of the 413 credit unions in the State have assets of less than €20m.

The Cuna conference heard reports, first published in this newspaper last week, that the Central Bank's registrar of credit unions James O'Brien had calculated that 79 credit unions were at risk of collapse.

Mr Lass said the experience in the US was that large numbers of credit unions had been forced to merge, but this did not mean the movement retreated. Instead, the assets of the sector had grown and the number of branches increased.

In an Irish context, this would mean that instead of a town losing its credit union, the office would still operate but be a branch of a larger credit union.

This would make the movement stronger.

Credit union analyst Bill Hobbs, commenting after the conference, said he estimated that it would cost the State around €500m to bail out credit unions that were at risk of collapse.

Many credit unions would have to be forced into mergers by the Central Bank in a bid to strengthen, but there would still be a need to buttress the reserves of some of the weaker credit unions, Mr Hobbs said.

He pointed out that deposits in credit unions were covered by the state deposit guarantee scheme, which covers amounts up to €100,000 per person.

Cuna said it believed that the Irish unions had it within their power to solve their own financial problems, but others believed a bailout may be necessary.

Irish credit unions have assets of more than €14bn and annual income of €140m.

Credit unions could help fill the gap left by the banking crisis but will first have to solve their own problems, the conference heard.

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