Credit union lobby groups have sought a relaxation of laws to allow them to co-lend on projects and channel deposits into the State savings programme as the Government considers the policy framework for a sector dogged for years by excess customer cash and limited loan demand.
A submission from the sector to the Department of Finance earlier this year included a request that a legal restriction against credit unions introducing business to each other be removed, according to Kevin Johnson, chief executive of the Credit Union Development Association.
The document, also signed by the Irish League of Credit Unions, Credit Union Managers Association, and the National Supervisors Forum, proposes that credit unions be able to lend in groups on larger transactions.
“Credit unions may introduce business to banks but are legally restricted from introducing new business to other credit unions, which is both anti-consumer and illogical,” said Mr Johnson. “Credit unions should also be able to co-lend to allow them to pool expertise and capital to fund larger transactions, such as community projects, and thereby share the inherent risk and administration costs. If credit unions can benefit from large, pooled loans, it will enable them to put members savings to productive and provident use while also increase their income.”
Lending limits
Mr Johnson added: “Credit unions, particularly smaller ones, often face the scenario where an attractive loan proposal is made to them but because of the lending limits on that individual credit union they are forced to decline.”
Meanwhile, the submission also calls for credit unions, struggling with excess deposits, to be able to put customers into State Savings products, similar to post offices. This would reduce regulatory reserves credit unions need to hold.
While the Central Bank eased lending restrictions early last year to allow credit unions to engage in more longer-term lending, including home mortgages and business lending, the Government committed last year as it was formed to review the wider legislative framework around the sector.
Minister of State Seán Fleming, who is responsible for policy in financial services, said last week that he plans to discuss proposals coming from the review “with stakeholders shortly”.
Wider recovery
Savings across the credit union sector rose by 2.8 per cent in the 12 months to €16.8 billion, the Central Bank said last week.
While credit unions participated in a wider recovery in credit demand in Ireland amid a phased reopening of the economy over the 12 months, the average player in the sector had just €27.10 out on loan for every €100 of assets as of September, close to historically low levels.
The ratio is down from 49 per cent in 2007, and ranks among the lowest across credit union movements worldwide. The optimal loan-to-assets ratio is widely viewed to be about 50 per cent.
