DUBLIN, Ireland–Flush with so much in deposits that some credit unions have capped member accounts, a group of about 40 CUs in this country are taking advantage of a relaxation of investment restrictions in 2018 to invest more than €150 million in a corporate bond fund.
The fund was put together by asset management giant and Amundi and Goodbody Stockbrokers.
According to the Irish Times, the fund, which is invested in more than 50 companies, is the first of its kind to get off the ground in the Republic since the Central Bank moved in 2018 to allow credit unions to invest in a corporate bond fund that had a minimum of €150 million at launch.
Goodbody had been working with credit unions since last September on the initiative, the Times reported.
‘Ideal Time’
“This is an ideal time for credit unions in Ireland to review their investment opportunities as negative interest rates have become widespread across the Irish market and, we expect interest rates in Europe will remain very low for an extended period,” Garard Moore, a senior director at Goodbody, told the Irish Times. “To counter this, we believe that credit unions need to look beyond traditional bank deposits and bank bonds and this new asset class will allow them to achieve this.”
The fund is open to further investment from credit unions.
Low Loan-to-Share Ratio
The Irish Times noted credit unions in the country have just €27 out on loan for every €100 of assets at the end of September 2020, according to the Central Bank, which regulates credit unions. A big reason has been the surge in household savings during COVID-19, which has driven a 7% increase in credit union deposits to €16.3 billion during the first nine months of 2020.
The Times added that up until the 2018 rule changes, credit unions could only invest in a limited range of investment options including bank deposits, government bonds and bank bonds. Corporate bonds in a fund must carry investment-grade ratings across debt ratings agencies, meaning that they must be rated between AAA and BBB-.