Saturday 19 August 2017

Regulator flags underprovision in credit unions

Laura Noonan

Laura Noonan

BAD debt provision at credit unions are running 40pc below realistic levels, according to an initial analysis by the Financial Regulator.

The news comes less than a week after the Irish League of Credit Unions revealed its 400 members made a record €480m worth of loan-loss provisions last year.

Appearing at a Joint Oireachtas committee meeting yesterday, however, the Financial Regulator said the level of loan-loss provisions was still inadequate. As part of a review of the sector, the regulator has run the rule over 50 individual credit unions.

"On average, they are under-provisioned by 40pc," said Jonathan McMahon, a senior official with the Regulator's office.

Regulator Matthew Elderfield described the underprovisioning as "systematic" and shot down politicians' warnings about the dangers of over-zealous regulation of the sector.

"I totally recognise that credit unions have a special place, but if you're asking me to sit on my hands and do nothing, I'm not going to do that," Mr Elderfield said.

"You don't want a situation where you have festering problems (like underprovisioning) that come back to cause solvency problems."

Asked whether the provisioning numbers were being dragged down by some particularly bad performance, Mr McMahon said the "general trend" was for underprovisioning.

Mr Elderfield also defended moves to compel the volunteer members of credit union boards to have some level of training or expertise, even if that meant losing some directors.

"In the same way that there are people who need to be moved out of the banks, there are people who need to be moved out of the credit union sector, for the good and future of the sector," he said.

Mr Elderfield rejected speculation that he favoured creating six or seven "super credit unions", insisting his only interest was that all the credit unions be "financially safe".

Irish Independent

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