Minister of State for Financial Services Seán Fleming says the credit union bill he is working on contains ‘no silver bullet’ for a movement weighed down by excess deposits and muted lending , and that it is mainly up to the sector to help itself. .
Mr Fleming said he hoped to present the heads of a bill to Cabinet next month, aimed at allowing credit unions to co-lend and collaborate more. It follows a program of government commitment to review the broader legislative framework around the sector.
“There is no legislative magic bullet for the credit union movement. All we can do is pass a law to allow them to lend. The only silver bullet is to lend more and that is up to the movement members themselves,” Fleming said.
The average credit union in the sector in the Republic had lent just €27 per €100 of assets in September, near historic lows, according to figures released late last year by the Central Bank.
The ratio is down from 49% in 2007 and ranks among the lowest among credit union movements globally. The optimal loan to asset ratio is generally considered to be around 50%.
“Some credit unions have ratios as high as 64%, but others are as low as 14%,” Fleming said.
The minister said he hoped credit unions would ‘rise to the challenge’ in the coming months to attract current accounts from people who have traditionally done business with Ulster Bank and KBC Bank Ireland, as the two overseas lenders quit the market.
The Central Bank eased lending restrictions in early 2020 to allow credit unions to engage in longer-term lending, including home mortgages and business loans.
Current Central Bank lending limits mean that the sector can effectively only offer a maximum of 3% of all mortgages underwritten in the state and less than 10% of loans to SMEs.
However, the regulator pointed out in March that mortgages in the sector were operating at only 10% of maximum capacity last September, while business loans were around 5%.
The planned new legislation aims to make changes in the area of common obligations of credit unions, where members of community unions must come from a certain region. A relaxation of joint obligations would allow credit unions to introduce business to larger credit unions and potentially jointly lend on projects.
Kevin Johnson, chief executive of the Credit Union Development Association (Cuda), said that by modernizing the common bond, “credit unions will be able to provide services to more people and small businesses, and ultimately account, to provide greater support to their communities”.
The number of commercial credit unions in the state has halved since 2006, to 214 last September, amid rapid industry consolidation following the financial crisis. The number of credit unions with at least €100 million in assets has increased by 40% to 66 over the past five years.
Mr. Fleming’s planned legislative changes also involve the creation of corporate credit unions, which would allow a group of credit unions to take equity stakes in a new social entity that would allow them to share resources and opportunities.
“Some credit unions would not want to merge with others for historical reasons, but they also realize that they are unable to provide certain services,” Fleming said. “It offers an intermediate option.”
Mr Fleming said he believed the ‘best opportunity’ credit unions had to lend was to provide unsecured loans to households looking to improve the energy ratings of their properties through renovation, with the assistance from government grants.
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