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Wednesday 18 September 2019

Regulator warns credit unions over mortgage lending risk

(Stock photo)
(Stock photo)
Charlie Weston

Charlie Weston

The Central Bank has warned credit unions about the risks involved in mortgage lending.

Registrar Patrick Casey, who operates from the Central Bank, told credit union supervisors they need to up their game.

Last month the Central Bank produced proposals that could see credit unions doing more mortgage lending and issuing more commercial loans.

The changes could see the local lenders able to issue €1.3bn in home-loan and business borrowing.

It comes after the lenders developed a new mortgage product with the aim of meeting regulatory requirements.

Most credit unions are currently restricted to lending no more than 10pc of their loan book over 10 years.

Some 15 larger credit unions have permission to issue 15pc of their gross loan book with 10-year terms. The sector's loan books have been shrinking for years.

But Mr Casey, who is the regulator of the sector, warned credit unions that want to expand into offering larger loans that they need to be clear about their strategy and the risks involved.

They will need effective systems of control and sound governance to become more heavily engaged in mortgage and commercial lending.

Speaking at the annual conference of credit union supervisors in Westport, Co Mayo, Mr Casey said: "Credit unions face challenges that are commercial in nature, and responses need to be both commercially targeted and grounded in a credit unions' core foundations of governance, risk management and operational capability.

"Business model growth is about seeking to ensure that the credit union has a sustainable and vibrant model, with prudent growth delivered across a broader set of income streams."

The registrar said this may work out very well for some credit unions.

"For others the picture will be more challenging. In either case, analysis must support conscious strategic decision-making on the part of the credit union board, and articulate next steps."

He said there are some 264 active credit unions, but they are different sizes and have different capabilities. Credit unions hold more than €17bn in assets, but the largest 53 account for more than half of the assets of the sector.

Irish Independent

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