Credit union levy will create €30m fund

A levy will be imposed on credit unions to create a €30m stabilisation fund over the next six years.

The Government has launched a consultation phase with credit unions until April 28 before it finalises a new regulatory regime for the sector. The aim is to set up a stabilisation scheme that includes steps to amalgamate or close credit unions that are considered not viable.

There are 390 Irish credit unions. Of these 195 have assets of less than €20m; 167 have asset of between €20m-€100m; and 28 have assets of over €100m. There are 20 credit unions with a total deficit of €11m.

The sector was hit badly by the credit boom. Reckless lending forced the closure of Newbridge credit union last December and the ongoing consolidation of other credit unions. Loan arrears across all credit unions is running at €871m, although the current level of provisions exceeds potential losses.

The consultation process will elicit feedback from credit unions on how best to build up the stabilisation fund. One proposal is that there would be a straight €12,500 yearly fee applied across all credit unions, which would be the equivalent of two average loans. The alternative is to base the levy on the size of assets. The contributions will come out of credit union profits.

All credit unions will be required to hold reserves equal to 10% of total assets. In order to be eligible to tap the stabilisation fund a credit union must have minimum reserves of 7.5% and has to be, in the opinion of the Central Bank, a viable entity.

The other steps available to a struggling credit union include resolution which would involve an orderly wind-down or a restructuring which would involve amalgamation.

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