Thursday 30 October 2014

Credit union savings are still safe – Central Bank

* Historic forced liquidation of local lender a 'one-off', High Court told

Charlie Weston Personal Finance Editor

Published 24/07/2014 | 02:30

The offices of Berehaven Credit Union, Main Street, Castletownbere, West Cork. Berehaven Credit Union was wound up by order of the High Court. Photo: Niall Duffy
The offices of Berehaven Credit Union, Main Street, Castletownbere, West Cork. Berehaven Credit Union was wound up by order of the High Court. Photo: Niall Duffy

THE country's three million credit union members were urged not to panic and pull money out of their accounts after a court ordered the first liquidation of a locally-owned lender.

Berehaven Credit Union in Castletownbere, west Cork, is to be wound up and its assets sold off to avoid a "disorderly collapse".

Its 3,500 members were left shocked, but will have their €11.3m in savings paid out of a State compensation fund.

The move prompted huge worry for the three million members of 386 different credit unions around the country. Savers have a total of €12bn in all the credit unions.

Fianna Fail Finance spokesman Michael McGrath said the sudden decision to put Berehaven credit union into liquidation will come as a shock to savers locally and throughout the country.

It is also a sharp reminder of the challenges facing the sector generally. More than 100 credit unions are on a "watchlist" in the Central Bank over fears that some loans will not be repaid.

But the Central Bank, which asked the High Court to wind up Berehaven, urged calm and said the forced closedown was a one-off.

"The appointment of the provisional liquidator to Berehaven Credit Union does not have any impact on members' savings in any other credit union," said the bank, which regulates the sector.

Chief executive of the Irish League of Credit Unions Kieran Brennan also said the vast majority of credit unions were safe and well run.

Speaking from Australia, where he is at a credit union conference, Mr Brennan said: "The movement as a whole is very strong. The Government is backing the movement." He stressed that all member savings were guaranteed up to €100,000 per person.

The failure of Berehaven Credit Union was exceptional, he insisted.

It is the latest in a number of credit unions to get into difficulty – Newbridge Credit Union had its operations transferred into Permanent TSB while Howth and Sutton Credit Union merged into another lender. But this is the first time a credit union has been wound up.

The credit union's board hit back at the Central Bank last night, saying it had taken steps to address the problems. Continued on Page 4

A statement said: "These matters had been addressed by the board in recent years and serious steps had been taken by the board to address these fundamental flaws".

While it did accept that in the past "there may have been poor governance and oversight", it said it had been impeded by severe restrictions placed on it by the Central Bank.

"Any business that is impeded in growing its income is destined to fail," it added, before pointing out that the nearest credit union for locals is 40km away.

The Irish Independent understands that plans were abandoned at the last minute to merge Berehaven with Bantry Credit Union. But this would have cost €3.5m, twice the cost of winding up Berehaven.

The move to wind up the credit union was taken by the Central Bank over concerns about bad lending, a sharp fall in the value of the lender's assets, poor internal controls and governance issues.

Among the problem loans at Berehaven Credit Union were those taken out by a former director of the Irish League of Credit Unions.

Limerick-based Matt Heffernan took out loans so large they breached the law, an internal report alleged.

Gardai were notified and Mr Heffernan subsequently stepped down as a director of the league, the body that represents most credit unions in the State.

But documents it presented to the High Court outline a litany of other problems with the 36-year-old Cork credit union:

* The documents state it is "financially unstable and is at increased risk of corporate failure".

* The regulator sought resignations from the board of Berehaven in 2010, getting confirmation later of the resignations.

* Nine regulatory directions were issued to the credit union by the Central Bank. These included orders to limit lending and an order to build up reserves.

* Around €3.5m in bad loans has had to be written off up to September 2012.

* Members who were already in arrears were given new loans, despite this being against rules.

* Poor internal controls were identified. These included using multiple names for individual member loans.

* Berehaven's general ledger was manually prepared and paper based.

President of the High Court Mr Justice Nicholas Kearns yesterday appointed insolvency practitioners Jim Hamilton and David O'Connor of BDO Ireland as provisional liquidators of Berehaven, located in Castletownbere in Co Cork.

Mr Justice Kearns said he was satisfied to appoint the provisional liquidators, after being informed by Paul Gallagher SC for the Central Bank that seeking to have an orderly wind-up of Berehaven CU was "in the public interest".

Counsel said the Central Bank was also of the opinion Berehaven credit union "may be unable to to meet its obligations to creditors".

The court heard that two reviews conducted in 2010 and earlier this year identified corporate governance failure at the credit union, which had not been rectified.

Savers will now get their money back under the State's deposit guarantee scheme, which guarantees up to €100,000 for account holders, the Central Bank said.

Michael McGrath TD said the credit union sector is one of our great strengths as a country.

Ireland has more credit union members per head of population than any other country in the world.

Irish Independent

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