Credit unions under pressure from online rivals like Revolut as they struggle to grow loan books

Only a small proportion of the assets of the member-owned organisations are being loaned out.

Strong competition in the personal loans market is coming from Revolut, Avant Money and the three retail banks.

Buy-now, pay-later products from the likes of Klarna are also growing in popularity and eating into the lending business of credit unions.

A report from sector’s regulator has found that lending among the State’s 205 trading credit unions has returned to pre-Covid levels, but the value of loans has barely risen between 2022 and the year before.

Personal loans are the main earner for the sector.

Some €5.6bn was loaned out at the end of last year, according to the ‘Financial Condition of Credit Unions, 2022’ produced by the Registrar of Credit Unions based in the Central Bank.

At the end of last September total lending of the sector was up just 1.6pc from the same period last year.

Loan levels remain close to historically low level, the registrar said.

Credit unions have the capacity to lend out another €2.1bn, the report says. It said there continues to be huge unused capacity for mortgage and business lending.

Just over a quarter of the overall assets of the sector are lent out.

Referencing the report, registrar Elaine Byrne told a conference: “While the financial trends observed over the 2022 financial year include some positive indicators, the low loan to asset ratios, increases in costs, and falling return on assets, if not addressed by credit unions will continue to impact on sustainability.”

Ms Byrne said arrears have fallen to a seven-year low, but she warned the lenders that economic headwinds and deteriorating macro conditions will likely be a challenge in the year ahead, creating a risk of higher loan arrears.

There are some 205 trading credit unions in the Republic, down from 274 in 2017, as credit unions continue to merge to create stronger units.

The report said there are now 67 credit unions with assets of more than €100m, up 53 six years ago.

But there are still 63 credit unions with assets of less than €40m, more than half of the number from six years ago.

Total savings of the sector have hit €17bn, up €250m on 2021.

Credit union assets have reached a record high of €20.31bn.

Deposits and investments remain the largest component of credit union assets, accounting for 72pc at the end of September last year. Deposits and investments stood at €14.7bn.

Average reserves as a percentage of total assets have again increased marginally, up from 16pc to 16.1pc.

No individual credit union is reporting a regulatory reserves position below the required regulatory minimum of 10pc of assets.

The report warns that the sector needs to address the imbalance between lending and savings, and the ratio between costs and income.

Ms Byrne said credit unions continue to fulfil a central role in the Irish financial services landscape.

“However, that landscape is changing at pace, and how you deliver products and services to meet your members needs will be a critical factor in your future sustainability,” she said at a Credit Union Managers’ Association (CUMA) conference.

She told lenders in the sector to develop a strategic plan that enables it to provide a universal product and service offering to all credit union members.