Credit unions to be stress-tested

THE Central Bank is sending financial experts to each of the state’s 414 credit unions — holding €12 billion in customer deposits — to stress-test their capability to withstand further bad loan write-offs.

A Central Bank spokesperson confirmed that the new series of stress tests will take place over the coming two months.

“Credit unions will be subject to a stress-testing exercise in the first quarter of 2011 to determine the capacity of the capital position of individual credit unions to withstand certain stressed scenarios and to assess the resultant level of any additional capital required by individual credit unions,” the spokesman said.

This latest in-depth analysis comes in the wake of a review by Grant Thornton which has been undertaken by the Central Bank at the request of Finance Minister Brian Lenihan

“This strategic review of the credit union sector will inform our actions to strengthen the prudential soundness of the sector in the interests of credit union members.

“This is a prudential report and has been provided to the Minister for Finance and Commission of the Central Bank. No decision has been taken to publish the report,” the Central Bank said.

A second stage of this review had been planned but the Central Bank said the approach to the next stage of the strategic review is under consideration and added that, to date, no consultants have been appointed.

The Central Bank did disclose that MKO Partners and Grant Thornton are conducting loan book reviews to establish the adequacy of the level of bad debt provisions, as part of the International Monetary Fund’s/EU €85 billion bail-out programme.

“The review covers all credit unions. Work on the top 200 credit unions has already been completed,” the Central Bank said.

The Central Bank said the loan book reviews are due to be completed by the end of April 2011 and stress-testing is scheduled for completion by the end of June.

And in a surprise move the Irish League of Credit Unions has cut short a series of nationwide public meetings “to provide expert personal finance advice and guidance to members of the public”.

An internal ILCU memo from chief executive Kieron Brennan disclosed that Fine Gael has “included a section in their manifesto document which matches almost word-for-word the ILCU ‘ask’.

“The Labour Party have now also made a commitment to credit unions in their manifesto.”

Mr Brennan said in the memo: “In light of these commitments, the feedback received from credit unions and general election candidates is that the need for the remaining public meetings has been greatly reduced.”