Thursday 22 February 2018

Credit union sector in crisis with 'dismal' loan-to-asset ratio - report

Colm Kelpie

Colm Kelpie

The loan-to-asset ratio in the credit union sector has tumbled from close to half at the start of the crisis, to around a quarter now, raising questions about the future of the sector, according to a body set up to advise the Minister for Finance.

Only five credit union movements, out of 105 around the world, have a worse ratio.

And the number of credit unions has fallen from 400 in 2007 to 320 at the end of 2015. That's expected to fall to 270 by early 2017, the Credit Union Advisory Committee (Cuac) has said, due mainly to restructuring.

Cuac said the fall in the loan-to-asset ratio is driven primarily by the economic climate in recent years, but also by Central Bank lending restrictions.

"There has been a marked reduction in the loan-to-asset ratio from 49pc for the sector in 2007 to 40pc in 2011 to 26pc in 2015," the report said, describing the figures as "dismal".

"As lending is the main vehicle through which credit unions generate income, this considerably increases the need to relook at the credit union lending model."

Cuac has made recommendations to help secure the sector's future, including to look at the 1pc interest ceiling on loans. Cuac said the cap in the UK is 3pc, and the international trend is to have no cap at all.

If a decision is made by Cuac to increase the cap, or do away with it, credit union loans would get more expensive.

The report said while credit unions have reduced, their total asset base is steady at around €14bn. Around 55 of the credit unions left by 2017 will have total assets of €100m or greater, and will control 60pc of the sector's total assets.

Other recommendations include a two-tiered system of regulation, for smaller and bigger credit unions, a full review of lending limits and concentration limits, proportionality in terms of governance requirements and that credit unions prioritise business model development.

Irish Independent

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