Thursday 8 December 2016

New warning for credit unions on loans from the Central Bank

Charlie Weston, Personal Finance Editor

Published 13/10/2011 | 05:00

AUDITORS of credit unions have been issued with strong warnings by the Central Bank to make sure they do not sign off on any accounts unless proper provisions are made for bad debts.

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In a six-page letter, seen by the Irish Independent, the auditors were told that "a significant number" of credit unions were not making proper provision for bad and doubtful debts.

The caution to the auditors comes a week after the Government said it was preparing to pump between €500m and €1bn into a number of credit unions that were at risk of going under due to loan arrears.

The number of loans in arrears is increasing at the State's 407 credit unions, with payments on around 18pc of the €5.2bn total loan book 10 weeks or more in arrears. This represents around €1bn.

Now the registrar of credit unions James O'Brien, who is part of the Central Bank, has told auditors extra provisions need to be made for bad debts.

In the letter he refers to a probe of the loan book. "The results of the inspections indicated that a majority of credit unions did not have adequate provisions," the letter states.

A number of credit unions need to bump up their bad loan provisions by a quarter, with some needing to increase their provisions by half.

"In forming an opinion on the adequacy of the bad-debts provisions determined by the directors, auditors need to be mindful of practices such as loan rescheduling, top-up loans, single/lump sum repayment loans, bullet type repayment loans, interest-only loans and connected party loans," the letter says.

Up to 80 credit unions are at risk of failing because they are unable to put of insufficient funds to cope with bad debts.

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