Thursday 14 December 2017

Eight out of 10 credit unions need to fix lax lending rules, warns Central Bank

Credit Union
Credit Union

Charlie Weston, Personal Finance Editor

Large numbers of credit unions have lax lending rules and poor governance, a new report into the sector by the Central Bank has found.

The Central Bank looked in detail at 200 credit unions and found that most of them were taking on too much risk.

"For most credit unions visited, we were concerned about the fundamental nature of weaknesses we identified in governance, lending, operations and risk management," the Central Bank's review of the sector concluded. The findings will be of huge concern to the three million members of credit unions throughout the country.

The regulators said that eight out of 10 credit unions needed to take action to improve the way they operate, step up their governance, and tighten up the standards applied when they are giving out loans.

Director of Credit Institutions and Registrar of Credit Unions, which is part of the Central Bank, Sharon Donnery, said: "Compliance with the legal and regulatory standards developed for the sector is a fundamental basis for any credit union in meeting this responsibility.

"Where we found that these standards were not in place, credit unions' boards and management have been required to make improvements to their governance and risk management systems."

No credit unions were named in the latest report, but it is known that one in four in the sector is on a Central Bank watch list.

This means up to 100 credit unions have been placed on the watch list by regulators.

They are being monitored and advised on how to improve their loan books.


But the Central Bank and Government have been at pains to stress that none of them have problems of the scale that forced the rescue of Newbridge Credit Union.

The Co Kildare credit union was taken over by state-owned Permanent TSB bank in an unprecedented move following a late-night application to the High Court on a Sunday night as it came within days of running out of cash. About €1 out of every €5 lent out by the State to 392 credit unions is in arrears, the Central Bank said recently.

In 47 credit unions arrears are in excess of 30pc of the value of their loan book.

Credit unions are being encouraged to merge to build strength in the movement. More than a dozen have already got involved in tie-ups.

Credit unions have been hit hard by a sharp drop in a demand for loans.

Loans to members have fallen by 11pc up to the end of September last year when compared with the previous year. There is now €4.5bn loaned out by the sector.

The Irish League of Credit Unions, the representative body for the majority of credit unions, said the issues raised in the Central Bank report are being dealt with by its member unions.

"Some are new challenges based on the recent legislation and credit unions are prioritising the implementation of these changes," it said.

"The vast majority of credit unions are trading successfully with strong reserves and capital percentages."

Irish Independent

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