Thursday 30 March 2017

Credit union loans worth €1bn 'gone into arrears'

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Charlie Weston , Personal Finance Editor

ALMOST €1bn worth of loans at the country's 400 credit unions are now in arrears.

This translates as no payments being made for 10 weeks or more on some €18 of every €100 loaned by credit unions.

The arrears level has jumped from 10pc of the loans of credit unions in 2009 to around 18pc at the end of June, the Irish League of Credit Unions has revealed.

This means that €936m worth of loans have not been paid for more than two months.

Loan arrears have jumped in tandem with the rise in unemployment.

But league chief executive Kieron Brennan stressed that many of the members who were behind on their repayments had savings in their credit union.

This meant the net arrears was a lower 15pc of the value of all loans -- which amounts to €775m of the movement's €5.2bn total loans in the Republic. Some 2.7 million people are members of credit unions.

The sector has put aside €672m to cover loans it thinks may not be repaid.

Mr Brennan stressed the percentage of the overall loans put aside by credit unions in case they did not get repaid was higher than banks' bad debt provisions.

"The rising level of arrears is a concern, but what gives us comfort is the level of provisions against it," he added.

Budgets

Head of monitoring at the league, Tom Kiely, said most of the loans would be repaid eventually, once people got their household budgets back on a better footing.

The recession has meant that the value of loans has dropped by almost €500m in the last year to €5.2bn.

Mr Brennan said people were afraid to take out a loan in case they lost their job or their income dropped dramatically.

Members were also engaged in repaying loans, while lending restrictions imposed on around 300 credit unions by the Central Bank had also dampened demand from borrowers.

"A lot of people are being driven to moneylenders because they can't get access to credit," he said.

"We will end up like we were back in the 1950s unless we watch ourselves."

Some €1.7bn was held in reserve by the community-owned unions, up almost 14pc on last year. The reserves in most were above the level demanded by regulators.

However, the league admitted that around six credit unions had very low reserves and were in such poor shape that they would end up having to be merged into stronger entities.

At least 10 credit unions are considering merging, ahead of moves by regulators to force a restructuring of the movement.

Savings are guaranteed in credit unions up to €100,000 per depositor.

Meanwhile, the Central Bank and the Money Advice and Budgeting Service (MABS) yesterday published a guide to help mortgage holders in, or facing, arrears. It is available at MABS offices or from www.mabs.ie.

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