Credit unions told they need €1.5bn and substantial reform to survive

CREDIT unions may need a financial injection of up to €1.5 billion and have been warned that they must adapt or many will face closure.

They were told, however, that if the right remedies are taken then the movement is sustainable and has a “key role” in Ireland’s future financial services sector.

Credit unions have been told that they must change their current practices, work together to reduce costs and improve efficiencies to ensure they have a bright future. Up to 80 credit unions could otherwise collapse.

Professor of banking, financial services and healthcare at UCD, Ray Kinsella, said that reforms will “almost certainly” acquire financial support likely to be of the order of €1.5bn.

A conference was told yesterday that Irish credit unions have the potential to achieve at least 7.5% sustainable growth through the “careful management” of their return on equity and costs.

Senior vice president with CUNA mutual group, John Lass, said the economic climate provided the credit unions with an ideal opportunity to make the necessary change to guarantee the movement’s sustainability.

He said that while the economic downturn has created short term problems, these can be overcome.

“We looked at the financial sustainability of Irish credit unions using a unique sustainable growth model known as the DuPont analysis,” he said.

“Based on published accounts for credit unions in Ireland, who have assets in excess of €14.2bn, total income at €140 million and a total reserve ratio of 13.17%, this model found that the credit union movement had sustainable growth at over 7.5% per annum. The challenge and opportunity for credit unions is to balance the three keys to sustainability — governance, financial structure and value proposition. They must be fully aligned and supportive of each other,” he said.

Professor Kinsella said that credit unions have played a very important role in Ireland over the past 40 years and had successfully retained the trust of its members and the integrity of its mandate.

“This is critically important, not just for the credit union and its members but also for the future of the Irish financial system. We are now in the process of constructing a correct model for financial systems.

“Our traditional systems have demonstrably failed and the correct model must leverage the credit union movement and ethos,” he said.

CUNA Mutual Europe chief executive Paul Walsh said the Irish credit union sector remains the Cinderella of financial services.

“Beguiled by banks and beloved by members, it remains the only part of our financial system still intact,” he said.

“Credit unions must have appropriate organisation design, a commitment to ethics and compliance and a disciplined adherence to a defined set of risk management policies.

“There needs to be a value proposition that is relevant to and embraced by credit union boards, management and staff,” Mr Walsh said.

CUNA Mutual insures 65 Irish credit unions.