Friday 15 November 2019

Credit unions 'may need €500m' injection of capital


THE Government may have to recapitalise certain loss-making credit unions to the combined tune of €500m.

Amid growing signs of a deterioration in relations between the credit unions and Financial Regulator Matthew Elderfield, the Sunday Independent has learnt that some credit unions will have to be recapitalised.

The number and the sums involved is not yet fully known but sources close to the cabinet told the Sunday Independent "a figure on the lines of half-a-billion would not be totally out of the ballpark".

Each credit union is an independent organisation, and while a growing number are loss-making, most are financially secure. A stress test of all credit unions carried out by Grant Thornton has yet to be published. In the immediate wake of coming into office, the Government established a commission into the state of the credit union movement.

The commission is expected to publish its report within the next month and a decision will then be made about the total level of recapitalisation that is required.

The Sunday Independent has, however, learnt that whilst some ministers believe the final bill could be as high as half-a-billion euro, a split is emerging between those who want to "throw money at the issue" and others who believe recapitalisation costs should be kept "to a minimum".

One senior source said the Department of Finance would be pushing to ensure that any decisions taken would be ones which will "represent the least costly option for the State".

Unlike the banks, credit unions, for the most part, were not involved in property speculation. But they have been hit by rising unemployment among their client base and by unwise investment advice from big lending institutions.

Speaking to the Sunday Independent, government sources said the central objective of any recapitalisation would be to "avoid the nightmare of a run on deposits".

A Department of Finance spokesperson responded to concerns on this issue by noting that deposits in credit unions "are covered up to €100,000" and noted that in spite of the even worse condition of the banks "no one has lost any cash in Irish banks".

A matter of even greater concern is the likelihood that any recapitalisation would be followed by mass closures and amalgamations of branches.

Last week, the belief was rife amongst government TDs that up to 200 credit unions would have to close.

Government sources said the amount of closures is now "likely to be substantially lower'' but in a signal of trouble to come, the astute FG Senator Tom Sheahan, who has been vocal in his criticism of the banking regulator Matthew Elderfield's attitude to credit unions, warned that "credit unions play a central role in our communities, TDs will not accept that viable branches will be closed to suit some bankers slide rule".

However, recent legislation on credit stabilisation also gives the Regulator the power to close down or amalgamate troubled credit unions as "he sees fit".

Lending restrictions have already been imposed on 300 credit unions.

Sunday Independent

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