Saavi, the State’s second-largest credit union, moved in its latest annual report to assure its members that the long-term lending and director expenses breaches that led to a €185,500 fine last month “belong firmly in the past”.
The credit union's chief executive, Robert Cooper, said that an easing by the regulator of long-term lending restrictions, following years of lobbying by the industry, "will be transformative" for the lender.
“Our biggest challenge is the shape of our balance sheet, with over 80 per cent of our income-generating assets in investments and less than 20 per cent in loans. In an ideal scenario, those numbers should be inverted, particularly when investment and deposits rates hover around zero per cent and in some cases are even negative,” said Mr Cooper in the annual report.
“Without growing our loan book, we cannot continue to generate sufficient income to serve our members as we would like.”
Breaching regulations
Savvi, formerly St Patrick's Credit Union, was fined in early November the Central Bank for breaching in 2017 regulations and the union's own credit policy, which stipulated that no more than 15 per cent of its loans can have a term of over 10 years outstanding. At the end of that 2017 its long-term lending accounted for 16.9 per cent of total loans. Savvi's members include staff from from the staff of ESB, The Irish Times and Independent News & Media.
Savvi ceased issuing all long-term loans from January 2018 and by the middle of this year its ratio of loans with at least 10 years to maturity had reduced to 14.7 per cent, the regulator said on November 7th.
Meanwhile, the Central Bank found that Savvi had reimbursed travelling expenses, totalling €28,341, over a period of four years in excess of the applicable Civil Service rates. This constituted a payment of remuneration to a director, which is explicitly prohibited under credit union legislation.
Meanwhile, the Central Bank moved last month to ease restrictions on long-term lending by credit unions, effective from January. It has removed the maturity limits that cap the percentage of credit union lending that can be outstanding for periods of greater than five and 10 years. The limits have been replaced by new maximums for home mortgage and business loans expressed as a percentage of total assets.
Flexibility
The regulator said last week that changes will provide financially strong and capable credit unions with the flexibility to undertake increased levels of long-term lending.
Savvi’s loan book grew by 2 per cent to €68.4 million in its last financial year, to the end of September. Total assets edged 1.4 per cent higher to €377.2 million.
The lender wrote off €215,575 of bad loans during the year, marking a 20.6 per cent increase 2018. Bad debt recoveries fell 20.4 per cent to €178,916.
