Credit unions 'under big stress' over sharp rise in loan arrears
THE country's credit unions are suffering from "significant stresses" from arrears on their loan books and from falls in the value of their investments, the regulator for the sector asserted yesterday.
The comments of registrar James O'Brien in a consultation paper were rebuffed by the Irish League of Credit Unions which insisted that the unions were well placed to withstand the economic storm.
There are 414 credit unions in the State, with 2.9 million members, and about €14.5bn in assets made up of €7.3bn in investments and €6.8bn in loans to members, Mr O'Brien said.
He added: "Over the last couple of years financial pressure on credit unions has resulted in them experiencing significant stresses on their two main assets -- investments and loans. This has had consequent impacts on other financial aspects of their business, in particular liquidity, solvency/ reserves and dividends."
But the league said it could not agree with this assessment.
It acknowledged that credit unions had made losses on investments but insisted that the vast majority of credit unions had written off their investment losses in their accounts last year.
The league, which represents the majority of credit unions, admitted that arrears on loans had increased. "But the responsible approach taken by credit unions in terms of prudent loan provisions and increased reserves, means that credit unions are well placed to withstand the current and future difficult economic times," it said.
It said the overall liquidity and solvency of credit unions were very strong.
In the past month Mr O'Brien told an Oireachtas committee there had been a sharp rise in arrears levels in the sector overall, which he said was a concern.
Arrears figures had doubled in recent years, he told the Oireachtas. About 13.5pc of the credit union loan book was in arrears. That figure was 6pc two years ago.
"With regard to investments, credit unions have had a particularly hard time. In the majority of cases, those investments have been written down so they have gone through the income and expenditure accounts.
"There is still, however, a large number of investments that could have difficulties in terms of amounts."
The consultation paper makes a number of proposals on how an investment fund, known as the Savings Protection Fund (SPF), and owned and controlled by the league, could be changed so that it could act as a "bailout" fund for all credit unions.
Savings in credit unions are covered for up to €100,000 per member under the statutory deposit guarantee scheme. Mr O'Brien said the SPF totals €119m, less 1pc of the total assets of the credit union sector. He proposes six stabilisation models, including maintaining the status quo, the fund coming under Central Bank control, or a voluntary stabilisation fund.
He said: "The current SPS does provide some degree of stability support. However, the SPS is not itself regulated ... and therefore the Central Bank of Ireland is unable to place any formal reliance on it as a support mechanism."