One-fifth of credit unions 'unlikely to pay dividend'
Published 27/01/2011 | 05:00
MORE than 80 credit unions could be unable to pay dividends this year as hefty loan provisions eat into profits, the Irish League of Credit Unions (ILCU) has admitted.
The comments come as new figures from the ILCU show its 400 credit unions took another €120m worth of provisions for bad debts in the nine months to September 30.
In an interview with the Irish Independent, ILCU boss Kieron Brennan said he "suspects" the full-year figures for 2010 to show a further increase in bad debt provisions.
The provisions mean credit unions are likely to post a bleak set of results for 2010, leaving rising numbers unable to pay any dividends (or interest) to their savers.
"Last year I think we had 60 credit unions who couldn't supply a dividend, I suspect that will go up," Mr Brennan said.
"We are looking at possibly the worst year for dividends."
The credit unions' figurehead added that the number of institutions not paying dividends "could be" as high as 70 or 80, though the final figure won't be known until March.
As well as choking dividends, the tough financial environment has also triggered a wave of consolidation across the sector with six mergers going through last year.
Mr Brennan said another 30 credit unions had approached the ILCU for advice about possible mergers, but he stressed that the league would never try to match-make deals between struggling members.
The Financial Regulator's ongoing review of the credit unions may also give institutions a further push to pursue mergers so they can meet new regulatory demands.
The regulator has already said he believes credit unions are setting aside 40c less than they need to for future bad loans, but Mr Brennan disputed this.
At the end of September, the ILCU's members had €600m of provisions against a loan book of €6.2bn. "Close on 10pc of the book is provisioned against now; the provisions are getting very high," Mr Brennan stressed.
The credit union movement did enjoy some respite in 2010, recording the highest number of new members in a decade as 40,000 people signed on the dotted line.
"You have people who can't get access to credit elsewhere who are coming to us now. It's not necessarily that they need money today, they're concerned about whether they'll be able to access credit on a fair and equitable basis down the line."
The ILCU is now pushing for new legislation that would make it easier for credit unions to offer bank card services so members can withdraw cash from across the globe.
Mr Brennan is also keen for credit unions to embrace online banking and electronic transfers. "We'd want credit unions to literally be able to give you everything you get from your bank, aside from mortgages," he said.
Interview: Page 5