Credit unions becoming larger but less profitable
Ireland has far fewer credit unions - and those that remain are getting larger and even less profitable.
The new state of play is revealed in the Central Bank of Ireland's 'Financial Conditions of Credit Unions' annual report.
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There are 142 fewer credit unions than in 2014, the report found. Of the 246 that survive, 109 have assets of less than €40m. Fifty-five have assets of at least €100m, almost doubling from 28 in 2014.
Despite the credit unions' increasing size and declining numbers, the return on assets was just 0.7pc, down from 1.6pc on March 31, 2014. Some 31pc had returns of less than 0.5pc, while 4pc had negative returns. Just 5pc of credit unions have returns on assets of more than 2pc, one eighth the proportion that did so five years ago.
"The pace of decline in return on assets across the sector is also of concern given the current benign trading environment," the Central Bank said.
"The low loan-to-asset ratio, coupled with declining investment returns in a prevailing low interest rate environment, has continued to impact on overall returns across the sector," it added.
Despite the poor financials, the report highlighted the "highly respected brand" and the loyalty of members, which it said made a competitive difference when coupled with the "member-centric ethos".
Credit unions have €18bn in combined assets and €15bn of savings, while they lend out some €4.9bn, investing €12.4bn.
Some credit unions are also heavily exposed to the risks of Brexit. "Forty-two community credit unions with total assets of €1.98bn and total membership of circa 406,000 are operating in the counties along the border with Northern Ireland," the Central Bank said. Total credit union income was €293m in the six months to March 31, 2019, 90pc of which was loan interest income and investment income.
Expenses across the industry hit €218m.
"The previously observed loan to asset ratio decline across the sector is beginning to reverse," the Central Bank's report also said.
"However, it remains close to an historic low level, averaging 28pc across the sector.
"While it ranges from 11pc to 72pc in individual credit unions, given the reliance on loans to generate income, a low loan to asset ratio in some credit unions presents sustainability challenges."
The report added: "The average cost-income ratio across the sector remains high, at 78pc, highlighting the need for improved efficiency."