Wednesday 21 March 2018

One in four of all credit unions in serious trouble

Charlie Weston

Charlie Weston

UP to 100 credit unions have been placed on a 'watch list' by regulators amid mounting concern about loans not being repaid.

This indicates that more than one in four credit unions is struggling as members are unable to make repayments on borrowings.

The names of the troubled credit unions have not been released.

The revelation came after the Central Bank defended its moves to shut down Newbridge Credit Union and have its loans and savings taken over by Permanent TSB.

Around 100 credit unions are to be encouraged to merge with others in a bid to strengthen them – most of these are ones that are in a fragile financial state.

The Government has put aside €500m to fund these mergers.

Taoiseach Enda Kenny said the takeover of Newbridge Credit Union was a necessary measure.

But he reassured members of credit unions across the country that the problems faced by Newbridge Credit Union "don't apply anywhere else as far as we are aware".

Junior Finance Minister Brian Hayes told the Irish Independent: "Newbridge is the only one that will require resolution, it is the only one that will require funds in terms of shoring up its liability.

"The rest of the ones are much smaller and can be resolved by way of management change or indeed merger, but not by way of resolution."

The Central Bank, which regulates the State's 392 credit unions, said Newbridge was a one-off. It had a large number of big loans to developers – the type of lending that credit unions are not supposed to engage in.

Average loans in most credit unions are €7,700, but in the Kildare lender the average loan was more than double this at €17,300. And there was €40m in loans to developers.

The biggest loans had an average size of €550,000 each. This is 70 times higher than the average loan size throughout the credit union sector. One loan was for €3.2m.

The figures have emerged in documents presented to the High Court as part of the Central Bank's successful application on Sunday night to have the credit union shut down and its loans and savings transferred to Permanent TSB.

Taxpayer funds of €54m are to be pumped into Permanent TSB to "incentivise" it and fund the takeover of the credit union.

But it also emerged that if the planned merger of Newbridge with nearby Naas had gone ahead it would have cost €69m – this confirms a report in the Irish Independent in September that was denied by officials.


Central Bank officials have refused to rule out more forced takeovers of credit unions.

Director of credit institutions and insurance supervision at the Central Bank, Fiona Muldoon, said that the Newbridge situation was a one-off, but there could be others.

"Credit unions are facing a very challenging environment. People's earnings are down and their ability to repay is down. So credit unions are facing a challenging time," she said.

Asked if other credit unions were in trouble, Ms Muldoon said: "I don't think you can say that Newbridge Credit Union is the only one. Nor can we say it is widespread throughout the sector."

She defended the move to seek an emergency hearing in the High Court and get approval for the shutdown of the credit union in a late-night court hearing.

There were fears that savings would be taken out in their millions unless fast action was taken once it emerged that the board of Naas Credit Union had reject plans to merge with Newbridge.

Some €20m in savings have flown out of the credit union since July when it emerged that there was a plan to have it merged with local rival Naas Credit Union.

Ms Muldoon defended the decision to use taxpayer funds to bail out Newbridge, rather than just liquidating it. She said it would be very difficult to recover the loans if the institution was liquidated.

Now it has emerged that the Central Bank is considering opening a new credit union in the town, or expanding a nearby one into the locality.

"The Central Bank is conscious, however, that there is a demand for the services of a credit union and is examining what arrangements can be put in place to provide specific credit union services for the community in the future," Ms Muldoon said.

Newbridge Credit Union had been in difficulty since 2008 and a special manager, appointed by the Central Bank to help deal with the problems there, is expected to be discharged.

Formerly owned and controlled by its members, the credit union will now be in the full control of the bank.

The 36 credit union staff will now become employees of the bank.

Irish Independent

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