DUBLIN, Ire.–Like credit unions around the world, this country’s CUs have seen a flood of deposits as a result of the COVID-19 pandemic. Unlike credit unions in many places, Ireland’s CUs have put a limit on the cash they will accept.
Some are now capping savings levels at figures as low as €10,000 and this could fall further, according to The Independent.
“Weak demand for loans and the imposition of negative interest rates by banks on credit union deposits is driving this trend,” the Independent reported. “Savings coming in are running at more than twice normal levels since the start of the COVID-19 crisis, according to the Irish League of Credit Unions.”
Some branches have started imposing a monthly savings cap because they feel this gives them more control and helps stop the once-off large deposits, the Independent added.
“Muted demand for loans from their members means credit unions have little choice but to put spare funds on deposit in banks,” the Independent noted. “But banks are charging them up to 1.1% in negative interest rates for deposits.”
One CU’s Limits
Among the CUs putting a cap in place is Lucan Credit Union in Dublin, which has reduced its deposit cap to €10,000. The most that can be saved per month is now €5,000.
Member share accounts will be limited to €35,000 from this week. Anyone who has more than that will have a refund cheque issued to them, the credit union told members in a letter, the Independent reported. The letter states there has been a huge increase in savings over the last six months.
"We have nowhere to place these funds on deposits as the Irish banks are charging high negative rates on credit union deposits," the publication quoted the letter as stating.
Also creating challenges: Ireland’s CU regulations require CUs to hold 10% of savings in reserves.
A spokesperson for the Irish League of Credit Unions told the Independent, "Since the COVID crisis started, savings coming into credit unions are running at over twice normal levels, as is the trend in the wider financial services sector."
Savings caps imposed by credit unions ranged between €15,000 and €50,000, the league said.
The spokesperson warned that if the larger caps did not reduce savings levels, then credit unions may decide to again lower the amount of the savings cap, according to the Independent.
Low Loan-to-Share Ratio
The 241 credit unions in the Republic currently hold €15.3 billion in members' savings, with just €4.5 billion out in loans, according to the regulator as quoted by the Independent.
At the end of last year the Central Bank said: "At sector level, the gap between lending and savings continues to increase while income continues to decline, as reflected in the lower return on assets."