A report on the credit union industry from Russell Brennan Keane found that lending restrictions are widespread with more than nine out of 10 credit unions surveyed operating under restrictions.
Caps on loans range from €15,000 for smaller credit unions to €50,000 for larger credit unions.
Partner at Russell Brennan Keane chartered accountants and business advisers, Colm O’Grady said credit unions are facing the most difficult time in the sector’s history.
He added that he does not believe that the sector will need the planned €1 billion injection. He said credit unions are in good health and may not even need half of the amount.
“At an operational level they are dealing with increased levels of loan defaulting, growing loan provisions, investment write-downs, declines in loan demand and a regression of the overall financial sector. They are also dealing with growing levels of oversight and loan restrictions from the Central Bank and are facing consolidation in the sector,” he said.
The report pointed out that credit union loan interest rates compare “very favourably” to the major bank rates. It said credit union rates ranged from 7.5 to 10.9% against 12 to 14% in the banks.
As part of the report, a number of credit unions were surveyed in the first half of this year and asked about their operations.
“Our survey found many positives in the sector including competitive loan interest rates, strong levels of liquidity and credit unions that are ready for change,” he said.
Three quarters of credit unions surveyed said they were very prepared for the consolidation and change facing the sector.
The report said that most credit unions are experiencing loan arrear problems. Net loan provision rates for the least challenged credit unions surveyed were in the range of 15 to 20% while the more challenged were in the high 20’s. In 2009, the rate was nearly 5%.
Just 40% of the credit unions surveyed have a clear loan book provision policy and half are completing regular loan book reviews.
The report said many credit unions are facing difficulties in meeting regulatory requirements, particularly in relation to their lending practices.
“It is important that credit unions focus on how they can improve their dealings with the Regulator. Key areas of focus include making sure that reporting is accurate, conducting regular loan book reviews and communicating with the regulator regularly,” said Mr O’Grady.
He also said that the number of credit unions in Ireland will decline as the sector consolidates.