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Central Bank will take over more credit unions


Finance Minister Michael Noonan. Photo: Tom Burke

Finance Minister Michael Noonan. Photo: Tom Burke

Finance Minister Michael Noonan. Photo: Tom Burke

THE Central Bank will have to take control of several more credit unions this year as huge numbers of borrowers are unable to repay their loans.

Senior financial sources told the Irish Independent last night they are convinced that a number of the lenders will not survive without intervention as they are being caught in a vicious cycle.

The crisis is worsening as increasing numbers of customers are unable to repay their loans.

This is putting huge financial pressure on a significant proportion of the country's 408 credit unions. In addition, regulations for credit unions have been tightened.

The predicted takeovers will come in the wake of the regulators' swoop on one of the largest cooperative lenders in the State.

Luke Charleton, a finance expert from Ernst & Young, has been put in to run Newbridge Credit Union after the High Court granted a request from Central Bank regulators for the appointment of a special manager to the lender.

Newbridge is the third largest community-based credit union in the State with assets of €190m.

It was the first time the regulators used new legislation to take control of a credit union.

The High Court was told Newbridge Credit Union does not hold sufficient reserves to withstand expected heavy losses from loan defaults.

At least half-a-dozen other credit unions will end up being run by the Central Bank, a number of experts in the sector said yesterday.

A government-appointed commission concluded in October that there are 26 unnamed credit unions where there are serious concerns about the amount of money they have set aside to cover loan losses.

The Credit Union Commission also found that loan arrears at the country's 408 credit unions have risen to €1bn, almost triple the level of arrears in 2006.

Finance Minister Michael Noonan has set aside €250m this year and the same again for next year to beef up the funding of credit unions.

The Government expects a number of struggling credit unions to be merged with stronger ones. The merged bodies will need extra funding to allow for higher numbers of borrowers defaulting on loans.

Credit union sources expect up to 100 credit unions to eventually end up merged with stronger ones.

A senior figure from the sector said: "Newbridge won't be the only one where the Central Bank takes control. There will be six or seven where a special manager is appointed."

Pressure from members to lower the repayments on their loans is creating financial havoc for the community-based lenders, according to sources.

Every time repayments on a loan are rescheduled, the credit union has to put aside 20pc of the value of the original loan into its reserves.

This means that if someone is struggling to make repayments on a €10,000 loan and the repayments are stretched over a longer period then the credit union has to set aside €2,000 into a loan provisioning account. This seriously restricts the amount of funds they have available to lend out.

One manager of a credit union revealed yesterday that it rescheduled repayments on 14 loans, and this meant it had to set aside €80,000 in case the borrowings were not repaid.

The financial co-operatives are hit by having to write off large amounts of lending as consumers are unable to make repayments.

Many have also being hit by a collapse in commercial properties that they funded.

Almost 300 credit unions have been told by regulators to restrict their lending. This has seen the overall amount lent out by the members of the Irish League of Credit Unions in the Republic drop by €670m in the year to last September to €5.03bn.

At least 10 credit unions are considering merging, ahead of moves by regulators to force a restructuring of the movement.

Regulator James O'Brien warned recently that not all credit unions will survive through the present financial squeeze.

Irish Independent