…As They Host The World, Relevance of Ireland’s CUs Is Challenged
BELFAST, Northern Ireland–As credit unions in this city, the Republic of Ireland and Ireland prepare to host visitors from around the globe as part of the World Council of Credit Unions’ conference in this city this week, many find themselves defending their relevance following the release of a new report. But there is also some good news in that same report.
And during the opening session of WOCCU's conference here, two elected officials challenged any suggestion that credit unions aren't relevant (see related story here).
The report found Ireland’s credit unions have seen their loan portfolios shrink by 45% in the past eight years, leaving the average loans-to-assets ratio at a “dismal” level that raises serious questions about the movement’s future, according to the report and the Irish Times.
The report by the Credit Union Advisory Committee, chaired by Donal McKillop, a financial services professor at Queen’s University Belfast, recommended a full review of Central Bank lending limits. The Central Bank regulates Ireland’s credit unions.
According to the Irish Times, the committee will also start a review this year of a current 1%-a-month interest rate cap on credit union loans, which may help the sector broaden the type of loans it offers.
The slump in credit union loans to 26% of assets last year from 49% in 2007 “is a situation for deep concern and raises fundamental questions about the relevance of the present credit union business model,” the Irish Times quoted the report as stating.
The ratio, which ranks among the lowest five among 105 credit union movements in the world, should be about 50%, according to McKillop.
As in the U.S., the number of credit unions in Ireland has been shrinking, falling from about 400 in 2007 to 320 last year. That number is expected to decline to about 270 by the end of this year or early 2017, McKillop said. By then, about 55 credit unions will have assets of more than €100 million, or 60% of the sector’s total, the Irish Times reported.
'Significant Upheaval'
McKillop said the lending decline has been driven by the financial crisis, when borrowers focused more on repaying loans, and as credit unions had to deal with the “significant upheaval” of overhauling corporate governance and restructuring.
However, the report said the fall may also have been stimulated by Central Bank lending restrictions, the Irish Times reported. “These include limits to what credit unions can lend to various types of business and caps that no more than 30% of loans be for a period of more than five years and less than 10% exceeding 10 years,” the Times noted.
For a large credit union with €40 million of loans seeking to get into the mortgage business, this means that it could only extend €4 million for home loans, the Times analysis added.
According to the report, total income across credit unions fell to €562.4 million last year from €860.6 million in 2007, while ROA fell to 1.51% from 3.53% over the same period.
The advisory committee, set up by Minister for Finance Michael Noonan in 2004, said that most of the recommendations set out by the Commission on Credit Unions in 2012 have been implemented.
McKillop told the Irish Times the “really good news” is that bad debt provisions, liquidity and capital ratios across the sector are now “really strong.”