Credit unions could be on the cusp of becoming a core provider of retail banking across Irish communities but only if they embrace changes coming down the tracks, the Governor of the Central Bank Gabriel Makhlouf has said.
Addressing the annual conference of the Irish League of Credit Unions (ILCU) he said the Credit Union Amendment Bill which is making its way through the Oireachtas “provides a significant opportunity for the credit union sector to transform into a community based provider of universal retail banking products and services.”
But he warned that “the sector must be prepared to embrace change” and said that “restructuring has already resulted in significant beneficial change, including more business and home lending”.
He also called on credit unions to extending their lending and said “significant capacity exists within the existing limits for further home and business lending. At the end September 2023, there was total capacity of €2.1 billion should all large credit unions take advantage of the increased lending limits available to them.”
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“Regretfully, there has not been a significant take up of these increased limits. Of the 67 larger credit unions, only 12 have applied for the increased lending limits, and of these 12, nine have already been approved.”
“The credit union sector has significant funds to lend. I urge you to utilise the capacity that exists within the existing house and business loan limits, and develop appropriate strategies to grow your loan books prudently.”
He said the Central Bank supported “larger asset-sized restructuring solutions to build scale, as well as the continuation of transfers between medium and smaller asset-sized credit unions. ”
While he accepted that the changes already happening and likely to happen in the future “can be challenging, perhaps even daunting” he said those who have already carried out some changes to the manner in which they do business “would encourage your colleagues to embrace the opportunity.”
Last month the Credit Union (Amendment) Bill passed its committee stage – or third of a five-stage legislative process – and the saw the adoption of two amendments.
It will allow credit unions to pass on members to other credit unions for services, even if they do not provide the service themselves and will allow credit unions to club together to provide loans, either through loan participation or syndication constructs.
The Credit Union Development Association estimates that credit unions’ mortgage lending volumes, which are set to amount to €200 million this year, will double each year “for the next couple of years” at least as a result of the legislative overhaul.
“We in turn welcome the opportunity that the new Bill provides smaller credit unions, who choose to remain stand-alone, to collaborate and refer business to other credit unions, so that all members of any credit union can gain seamless access to the broader range of services that are now being provided within the sector, such as current accounts,” Mr Makhlouf said.
Mr Makhlouf expressed concern about developments including “technology-driven new products in the crypto area, which do [in some instances] raise serious questions around sustainability and concerns relating to consumer and investor protection.”
However he said that “technology is driving significant change” with “Fintech and BigTech companies, as well as others [likely] to continue to expand their financial services offerings and gain market share with such developments “good for consumers”.
He noted that in Ireland “where we have recently seen major players leave the market, there is a need for adequate levels of competition between firms in order for markets to function effectively and provide households and businesses with appropriate levels of availability and choice”.
“Well-regulated competition delivers value for money for consumers by reducing costs and prices, and promoting better service levels, as firms seek to attract and retain customers. And the more competitive our markets are, the better our economy will perform,” he said.
