Thursday 23 January 2020

Credit unions will struggle to generate income - Central Bank

Central Bank of Ireland. Stock picture
Central Bank of Ireland. Stock picture
Charlie Weston

Charlie Weston

CREDIT unions face challenges trying to generate income in a low-interest rate environment and because of their high operating costs.

A new report from the Central Bank found the sector has strong reserves but is struggling to generate a return on assets. This is because lending levels are low.

And the challenges are set to persist, the Central Bank warned.

Returns on investments have been declining steadily since 2012, the sixth issue of the report on the financial condition of the credit unions found.

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Investments in credit unions have surged by 58pc over the last eight years and now total €12.5bn. This is mainly due to increased member savings.

However, the average return on investments has been in steady decline, decreasing to 0.9pc this year from a high of 3.1pc in 2012.

This comes at a time of a fall-off in the number of credit unions in the State. Eight years ago there were 406, but mergers and closures have reduced the total number to 241 today.

Despite this, credit unions maintain an "extensive footprint across the country", according to the Central Bank.

Credit union-sourced data shows their combined membership totals about 3.4 million people, making it one of the biggest membership organisations in the country.

The assets of the sector have continued to expand. The assets of a credit union include its investments, loan book and its buildings.

Total assets were up by 31pc to €18.3bn this year from €14bn in 2011.

Increased levels of longer-term lending were also detected and a net increase in the total value of new loans advanced since late 2015.

Registrar of Credit Unions Patrick Casey said the trends highlighted the significant challenges that credit unions have faced since 2011, due to the changing nature of financial services and the low interest rate environment.

"Going forward, as those challenges will likely persist, credit unions need to take greater ownership of their business model development in order to achieve sustainability for members," Mr Casey said.

Irish Independent

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