Business Irish

Tuesday 20 March 2018

'Cosmetic' accounting warning for credit unions

Members told not to mask loan arrears by rescheduling

Charlie Weston Personal Finance Editor

CREDIT unions have been warned by their own representative body not to engage in "cosmetic accounting" by masking loan arrears.

An internal document seen by the Irish Independent shows that the Irish League of Credit Unions has warned its members not to get involved in frequent or unauthorised rescheduling of loan arrears.

The document said doing this would misrepresent the true arrears situation.

Credit unions are struggling with mounting arrears.

The document, which is called 'Credit Union Year End Requirements 2010', points out that credit unions have passed a motion at a previous annual general meeting of the league promising to keep a register of all rescheduled loans.

According to the document: "The resolution was approved at League AGM in an effort to deal with the question of 'cosmetic accounting' relating to loan arrears."

The document goes on to caution credit unions that "frequent or unauthorised rescheduling of loans misrepresents the true arrears situation and thereby improperly reduces the provision requirements".

Bailout fund

Credit unions were also told that loan rescheduling was a means of helping members who found themselves in difficulty.

"It must never be used to purposely conceal loans' delinquency and must only be done on the member's request."

Credit unions that try to conceal arrears will not be in compliance with the conditions to be observed to avail of the league €125m special-protection scheme (SPS), a bailout fund for credit unions that have funding issues.

Asked about the warning, a spokeswoman for the League of Credit Unions responded: "The vast majority of credit unions carry out the procedures with regard to rescheduled loans according to best practice procedures.

"However, improvements in the implementation in some credit unions is ongoing and will be part of the regulatory requirements.

"But this is a precautionary warning to credit unions to ensure that they follow best practice."

Registrar of Credit Unions James O'Brien told an Oireachtas Committee in May there had been significant amounts of what were termed rescheduled loans in recent years.

As a result, new rules had been imposed on all credit unions, to put aside more money in case more loans were not repaid.

He said the stresses caused by loans not being repaid on time had increased dramatically.

About 13.5pc of loans -- or one in every eight loans -- were in arrears for longer than 10 weeks, he said. That level of arrears had to be compared with the level of about 6pc a couple of years ago.

Meanwhile, more than 600 League of Credit Union delegates agreed at a special general meeting at the weekend to call on the registrar to allow it to give access to its stabilisation fund to all credit unions, and set it up as a separate company to the league.

The registrar has called for submissions on putting in place a stabilisation fund, with a statutory fund favoured by regulators.

Members of the league feel they are compromising on allowing their €125m fund to be open to credit unions even if they are not members of the league.

Irish Independent

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