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Government to pump €1bn into troubled credit unions

THE Government is preparing to spend up to €1bn to bail out failing credit unions, it emerged yesterday.

Finance Minister Michael Noonan said funds left over from recapitalising the banks will be used to boost the reserves of credit unions that have run into difficulties.

Up to 79 credit unions have been judged to be at risk of failing by the Central Bank, with regulators worried that up to €1.7bn in loans is at risk of having to be written off.

Rising arrears and investment losses at these community lenders means they need more capital to absorb losses.

Serious financial difficulties have been experienced by around 20 of the 79 at-risk credit unions. These 20 have sought financial aid from a fund set up by the Irish League of Credit Unions.

Almost €1bn worth of loans at the State's 400 credit unions are in arrears for 10 weeks or more. This represents gross arrears of 18pc of the €5.2bn loan book in the Republic.

And around 300 credit unions have had loan restrictions placed on them.

Now the Government is set to recapitalise troubled credit unions by up to €1bn, using funds put aside for the country's banks that were not fully used.

"I seriously intend sorting out the credit unions and some of them we'll have to do immediately but we won't do it in one big bang," Mr Noonan told the Seanad yesterday.

"My advice already is that it will cost between €500m and €1bn because the major sorting out is recapitalisation. We recapitalised the banks for less than we expected so we have the resources, we won't have to go back to the Exchequer for it," he added.

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Arrears are one of the big problems for credit unions, which are all individually owned and operated.

The level of arrears has jumped from 10pc of credit union loans in 2009 to around 18pc at the end of June, the Irish League of Credit Unions has revealed.

This means that €936m worth of loans have not been paid for more than two months.

Loan arrears have jumped in tandem with the rise in unemployment.

But league chief executive Kieron Brennan stressed last week that many of the members who were behind on their repayments had savings in their credit union.

This meant the net arrears was a lower 15pc of the value of all loans -- which amounts to €775m of the movement's €5.2bn total loans in the Republic. Some 2.7 million people are members of credit unions.

Major consolidation of the sector is expected once a government-appointed commission, headed up by Queen's University academic Professor Donal McKillop, is set to present an initial report to the Government on Tuesday.

The Central Bank has set up a special unit to manage the merger of credit unions.

The move is the clearest sign yet that regulators want to radically reduce the number of credit unions from 409 to as few as 100.

Registrar James O'Brien said recently that mergers would be necessary as an increasing number of credit unions were set to get into financial difficulty this year, mainly due to being badly run.

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