Tuesday 26 March 2019

Credit unions that have merged 'marginally improved financial position and performance'

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Charlie Weston Personal Finance Editor

A spate of mergers has seen a doubling in the number of larger credit unions, but lenders that have linked up have only marginally improved their financial performance.

The tie-ups have meant that the number of smaller credit unions has been reduced by half, according to a new Central Bank report.

There has been official encouragement for the member-owned entities to come together in a bid to cope with increased regulatory burdens and to create more financially sound credit unions.

But there has not been any major improvement from the link ups.

The Central Bank said: “Credit unions involved in restructuring marginally improved their financial position and performance.”

The fact that regulators can only point to small gains when credit unions link up is likely to convince many boards to retain their independence and resist a merger with a neighbour.

Mergers have occurred in every county, in a move that has seen 420,000 members ending up in a larger credit union.

In the last decade some 154 mergers have taken place, with 135 of these taking place since 2013.

The Government set up the Credit Union Restructuring Board that year to provide advice and funding to encourage credit unions to merge.

This has seen the total number of individually-run credit unions drop from 419 in 2008 to 254 at present.

Some 54 credit unions now have assets of more than €100m, up from 28 in 2013.

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The majority of what are called transfers of engagement were voluntary.

However, the number of credit union offices has not fallen dramatically. Almost eight of 10 credit unions that have merged have kept the same number of offices.

Merged credit unions have seen growth in the loan books in contrast to ones that did not merge, which saw their loan books shrink.

But there has only been what the Central Bank said was a marginal rise in savings in merged credit unions.

And the improvement in the financial returns of enlarged credit unions has also only been marginal, or what the Central Bank refers to as a return on assets.

“An analysis of the financial performance indicates that transferee credit unions are achieving cost savings and economies of scale, and marginally better returns on assets,” the regulator said.

Assets of a credit union include its investments, loan book and its buildings.

Credit unions that joined with others managed to cut their costs but their costs remained high.

Central Bank-based registrar of credit unions Patrick Casey insisted that credit unions that have completed transfers are delivering higher lending growth and improved cost to income ratios compared to peers.

“We continue to encourage credit unions to consider restructuring as a strategic opportunity in service of enhancing member services, in achieving scale efficiencies and in consolidating strength in reserves.”

He said restructuring can help credit unions to realise cost savings by eliminating duplicated costs and achieving scale economies.

He said the boards of credit unions should be mindful of the potential opportunities that restructuring can offer to their credit union and its members.

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