Credit Unions' stability to be probed by Central Bank
Published 22/02/2011 | 05:00
CREDIT unions are bracing themselves for a new set of probes by the Central Bank to check if they can withstand further loan losses as the recession continues.
The Central Bank confirmed yesterday that all credit unions would now be subject to a loan-book review.
"A stress testing exercise of the sector will also be conducted, which will include undertaking specific work on a number of individual credit unions (with the number of individual credit unions to be determined)," the spokesman said.
This latest stress-test exercise follows a review of the sector by consultants Grant Thornton, which was put in place by the Central Bank after a request from outgoing Finance Minister Brian Lenihan.
There are some 414 credit unions in the State holding €12bn in customer deposits.
It is understood the Central Bank registrar of credit unions James O'Brien fears that loan losses for credit unions could hit €1.7bn out of a total loan book of €7bn under a worst-case scenario.
Pressure on the sector during the recession has been put into focus after it emerged that one -in-five credit unions would be unable to pay a dividend for last year to its members.
Other credit unions have been told by regulators to cut the dividend payment -- effectively the interest on accounts -- with more money to go into reserves to cover loan losses.
The Central Bank said: "This strategic review of the credit union sector will inform our actions to strengthen the prudential soundness of the sector in the interests of credit union members.
"This is a prudential report and has been provided to the Minister for Finance and Commission of the Central Bank. No decision has been taken to publish the report."
A second stage of this review had been planned but the Central Bank said the approach to the next stage of the strategic review was under consideration.
A spokeswoman for the Irish League of Credit Unions had no comment to make.
And the league has suspended a country-wide lobbying campaign of politicians ahead of the elections.
It is understood the town-hall meetings were suspended after Fine Gael agreed to include a section in its manifesto document on credit unions that has matched almost word-for-word what the league wants.
The manifesto states: "In government, we will establish a commission to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect depositors' savings and financial stability."
Labour has also made a commitment to credit unions in its manifesto.