Wednesday 26 April 2017

Credit unions turn away cash as bank rules force change

Capital Credit Union, which emerged from the merger of Dundrum and Sandymount in Dublin, said it was restricting new savings to €30,000 per member (Stock picture)
Capital Credit Union, which emerged from the merger of Dundrum and Sandymount in Dublin, said it was restricting new savings to €30,000 per member (Stock picture)
Charlie Weston

Charlie Weston

Credit unions unions are turning away cash. Some of them are telling members to reduce their savings balances below €25,000, with others putting caps in place for the amount of new savings they will accept.

Credit union leaders said the savings-and-loans bodies were suffering from their own success, as members wanted to save with them rather than with the banks.

But high levels of savings at a time of muted demand for loans are causing problems for credit unions.

Too many members want to save, and not enough are taking out loans.

An additional €800m was saved in the State's 286 credit unions last year, taking the total for the three million members to €13.3bn.

For every €100 in savings, €10 has to be put into the reserves. The money that goes into the reserves comes from profits made on loans.

Chief executive of Rathfarnham Credit Union in Dublin, Al McCauley, said it asked its 26,000 members to reduce their savings balances down to €50,000 last year.

It was now considering a further reduction, to €25,000 a member.

St Anthony's and Claddagh in Galway said it is imposing a cap of €70,000 for new savings balances per member.

Capital Credit Union, which emerged from the merger of Dundrum and Sandymount in Dublin, said it was restricting new savings to €30,000 per member.

Chief executive Gerry McConville said the limit would apply to new savings only.

Those of the 37,000 members who have savings of more than €30,000 will not need to reduce the amount.

He said the credit union was restricted in how it could invest its funds, and was having to pay Bank of Ireland for deposits since the bank introduced negative interest rates for large deposits.

Read More: Analysis: Rules mean little option other than a savings cap

"We are a product of our success. People want to put money into a credit union. They don't want anything to do with the banks. But we have to have 10pc of member savings in our reserves, and we are charged negative interest rates by the banks when we deposit our surplus funds with them," Mr McConville said.

A spokeswoman for the Irish League of Credit Unions said: "To date, a number of credit unions have decided to restrict savings.

"As the average amount in savings held by a credit union member is €3,980, the majority of credit union members won't be affected by a savings cap."

Surplus

There was fury when the Central Bank imposed a limit of €100,000 in savings per member two years ago.

The Central Bank acknowledged that credit unions are restricted on where they can invest surplus cash.

The options mainly consist of safe, but low-yielding investments, such as bonds and bank deposits.

A review of the investment regulations for credit unions is due to take place this year, the Central Bank added.

Irish Independent

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