Credit unions face €24m state bill

THE state’s 414 credit unions will soon be hit with a demand for the payment of €24 million in premiums to cover the cost of the Government’s guarantee on their deposits of €12 billion.

To date, credit unions have been not be asked to make payments, unlike banks and other financial institutions. But now Financial Regulator MatthewElderfield said credit unions will have to start paying for the cover they get under the scheme to protect customers deposits of up to €100,000.

Mr Elderfield told the Irish Examiner credit unions are covered by the deposit guarantee fund.

“Credit unions actually need to start paying their premiums for the guarantee fund, that’s not started yet.

“The credit unions have not yet been billed for their participation in the deposit guarantee fund, so they receive the benefits of that but they have not yet had a charge for that,” he said.

There is close to €12bn on deposit in the 414 credit unions in Ireland and the premium payable is 0.2% of eligible deposits – €24m, or a minimum of €25,400 per credit union.

Mr Elderfield said he has concerns about the Savings Protection Scheme (SPS) for credit unions run by the Irish League of Credit Unions, which has rejected his proposals for a credit union stabilisation scheme.

“We know of the 414, there are some under pressure on solvency. They will need support from somewhere. I have concerns about the SPS, in terms of its size, its availability to non-league members and its ability to act quickly in times of pressure.

“The ball is in the league’s court in order to prove me wrong in those areas and if they do that then I will welcome that. They have been very responsible in dealing with the credit unions that have had challenges so far,” he said. Mr Elderfield said a credit union by credit union review is being taken of the loan books “We have written to all the credit union management and boards and asked them to do a stress test, which is helping us identify which ones need closer attention. And as a result of the one-by-one loan book reviews, we will be able to give guidance where we think there is under provisioning. We think there is significant under provisioning [for loan losses],” he said.

Mr Elderfield said the guarantee fund could also act as the stabilisation fund. He said if a credit union defaults a credit line could be provided by the Government or Central Bank, with costs recouped over time.

“If I was an individual credit union member, league member or CUDA member, I’d sorta say to myself, well I want protection.”

Mr Elderfield said careful consideration has to be given to the situation but he will look in detail at the ILCU’s proposals. “In the meantime no bad blood. We are working with them and I think they’re doing a good job in terms of being constructive in helping to deal with some of their challenging cases,” he said.