Monday 18 December 2017

Credit union policies tied up in government red tape

Red tape
Red tape
Charlie Weston

Charlie Weston

MICHAEL Noonan wants credit unions to lend more. The Finance Minister feels this would help grow the economy. He knows that credit unions have large amounts of member deposits that could be lent out.

Speaking in Limerick last week, he referred to 430 credit unions having huge capacity to get credit rolling.

Let's leave aside the fact that he over-estimated the number of credit unions by around 38; of course they should lend more.

The 392 credit unions have a combined €10bn in deposits, and most of these community bodies are not loaning out anything like the amounts they could advance.

This is a major problem for members, as most of these community lenders rely heavily on loans to produce an income. No lending, means little or no dividend and leads to a weak credit union.

Even after all we have been through in the last decade, credit unions remain one-trick ponies. They take in deposits and loan some of that out. Most have no other source of income.

So, on the surface you would think Minister Noonan is making sense when he tells them to lend more.

It is a tacit admission that despite the multi-billion-euro bailouts of our banks there is still a credit famine. He was even talking recently about trying to get a new bank to set up here.

His argument falls down when you consider the reasons why credit unions are not lending more.

Members are scared they will not be able to make repayments. Mr Noonan's Budgets and the austerity they have imposed is a huge factor here.

But the other big reason for insipid lending is Government policy and regulatory rules.

The 2.8 million members of credit unions will be only too aware that half of credit unions have lending restrictions imposed on them by Central Bank regulators.

And government policy is also making life really tough for the community lenders.

Tough new rules – another ministerial order was signed last week by Mr Noonan restricting how credit union boards operate – are a big drag on growth.

This is why so many are merging. And of course it is State policy to foster consolidation in the sector.

The good news is that credit unions are rising to the challenges of economic change and the micro-managing by the State and its regulators.

Huge numbers of credit unions have signed up to offer their members electronic payments. Hopefully, they will be able to put it up to the banks by offering current accounts as part of this.

The credit unions will do it for themselves, but they could do without Minister Noonan telling them what to do, while State and regulatory policies tie their hands.

Twitter: @Cweston_Indo

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