Killorglin Credit Union (KCU) in Kerry has been subsumed into Tralee Credit Union (TCU) following a High Court application on Thursday by the Central Bank.
The move follows a secret four-year engagement with regulators to repair its balance failed. It had needed a €3.1 million injection just to meet regulatory reserves.
A report prepared by the special resolution unit (SRU) of the Central Bank for the governor, Patrick Honohan, blamed KCU's woes on poor corporate governance, a decision to invest €5.4 million in a new premises that is now worth €450,000, and potential losses on a series of "bullet loans" with delayed repayments, including several to directors and staff at KCU.
The SRU’s report, prepared prior to Thursday’s application, warned of the possibility of a run on KCU if members, whom it said were “unaware” of the credit union’s true position, found out what was going on.
The report said KCU is located in a prominent part of the town and could only accommodate 15 or 20 people queuing before it would be noticed by others, and recommended immediate amalgamation with TCU.
The SRU report said KCU has been in a “distressed financial position” since 2010.
It spent €5.4 million acquiring and renovating a new premises in 2009, which was valued three months ago at less than 10 per cent of this, requiring a writedown in its accounts.
Substantial support
Throughout 2011 and 2012, it received substantial support to keep it afloat from the Irish League of Credit Unions' savings protection scheme.
On October 22nd this year the regulator directed it to boost its reserves, which it said it was unable to do, sparking the merger with TCU.
An investigation into its affairs in 2010 by accountants appointed at the behest of the regulator found that between 2008 and 2010 it gave out 93 bullet loans worth €3 million. These loans required no repayments at all for five years.
In 2010 it was hit with a loan limit ceiling of €10,000 and was barred from issuing commercial loans. Bullet loans accounted for 13 per cent of its loan book at the time, and the SRU report said an inquiry had found its board “did not fully understand” the problem.
Its chairman, vice-chairman, treasurer and secretary were forced to resign and no AGM has been held since 2012.
TCU will receive a payment of €2.1 million to take on KCU, the report said.
