According to the Central Bank’s latest annual report on the financial condition of credit unions published earlier this month, savings across the sector rose by 2.8% over the year (accounting for a 0.7% dip in September) to €16.8bn.
Householders slowed their rate of savings with Irish credit unions in the year up to September, as the sector tightened limits on customers’ deposits and customers and families started to spend once COVID-19 restrictions were eased.
Credit union deposits have always far outweighed their loans in Ireland. The report stated there are broader structural risks and challenges for credit unions, including the ongoing changes in financial services (such as the technological transformation, the imminent exit of Ulster Bank and KBC Bank, and new entrants such as Revolut and N26), as well as climate change.
If credit unions are to remain relevant to their members and leverage potential opportunities, these challenges need to be addressed as a matter of priority.
As of September 2021, there were 214 trading credit unions (down from 229 in September 2020), in comparison with 428 in 2006. This is mainly due to the constant consolidation within the sector.
Savings and loans
Overall, savings in the sector continued to increase year on year. The reported savings slowdown may be due to many credit unions endeavouring to manage savings inflows and also some reversal of adverse COVID-19 effects.
Many credit unions have imposed limits on taking savings from customers over the past few years - €10,000 in some cases - as banks impose negative interest rates on short-term deposits accepted from the sector.
The report stated that even though the regulator has eased lending restrictions for the sector in recent years, to give additional capacity for house, business and farming lending, credit unions remain heavily dependent on unsecured personal lending.
Total loans rose by 3.1% in the year to €5.25bn. The average level of loans in arrears was reported as 3.4% (a six-year low) at the end of the accounting period.
Although credit unions in Ireland participated in the wider recovery in credit demand amid a phased reopening of the economy over the 12 months, the average player in the sector had only €27.10 out on loan for every €100 of assets (savings) as of September 2021, according to the report.
This ranks among the lowest across credit unions worldwide. The optimal loan-to-assets ratio is widely viewed to be about 50%.
Total surplus income reported rose by almost 68%, to €122.2million, driven by releases of bad loan provisions.
Credit unions registrar Patrick Casey stated that credit unions need to ensure the underlying sustainability challenge arising from long-term divergence between lending and savings is addressed, despite some emerging positive trends.
Credit unions in Ireland have plenty of money to lend
He said credit union boards and management also need to ensure strong governance and risk management are in place, to support and enable them to identify business opportunities on a prudent basis to service their members’ needs.
Minister for Finance Paschal Donohoe said a Government review of the policy framework around the sector is at an advanced stage and the credit union movement could play a more active role in their respective communities, in supporting housing association ownership, home ownership and retrofitting, in particular as banks continue to reduce their presence in local towns and villages across the country.
Credit unions in Ireland have plenty of money to lend and with the appropriate legislative and regulatory framework could become a leading financial support locally.