Tuesday 20 March 2018

Credit unions are warned high dividends 'no longer sustainable'

Charlie Weston Personal Finance Editor

CREDIT unions have been warned that paying generous dividends, or interest, on savings is no longer sustainable.

Registrar of credit unions James O'Brien also told credit unions that a major shake-up in how they are governed is needed -- and that regulation is set to become more intrusive.

In a major speech to the representative body for credit union managers, Mr O'Brien said higher loan losses and plunging investment incomes for credit unions would put a dampener on dividends.

"It is becoming clear that the high dividend-driven business model of many credit unions is no longer sustainable," he said.

Credit unions should be judged on the strength of their balance sheets rather than the level of dividend being paid on savings at the end of the financial year.

Mr O'Brien also called for the position of managers in credit unions to be formally recognised in law.

Professional managers in credit unions have few formal powers, despite some of them playing a key role in the running of the co-operatives.

Credit unions should put in place a robust governance framework and boards should avoid relinquishing too much control to managers, the conference in Athlone was told yesterday.

In the past many credit unions suffered from directors having too much power, leading to what Mr O'Brien called the "dominant director syndrome".


But he warned that there was also a risk that professional managers would become too powerful, leading to what he called a "dominant manager syndrome".

"In this respect we will also be seeking to put statutory fitness and probity arrangements for credit union managers in place as soon as possible.

"Managers are the professionals in credit unions and we would expect that they are accountable and appropriately qualified in terms of education, experience and competency to manage the complexity of the business they are running," he said.

Managers played a key role in the operations of the credit unions, he said, but the boards will continue to be held responsible for the running of the credit unions.

Mr O'Brien said proper systems of accountability, risk management and control would be needed if credit unions were to meet the demands of its members, who are becoming more sophisticated.

Many problems in credit unions can be attributed to poor governance, he said.

Basic principles should be implanted, such as clear structures and processes, ensuring boards, management and staff are equipped with the competencies to run and manage the business.

"Too often, however, issues in problem-case credit unions have been exacerbated by boards relinquishing control to a manager. This is not acceptable to us.

"We do, and will continue to, hold boards responsible for the running of their credit unions. However, neither is it acceptable that managers are not held accountable," he said.

Irish Independent

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