Legislation to facilitate change in industry

The Government is set to publish legislation facilitating major change to the credit union industry by the end of June.

The move will usher in a wave of consolidation among the country’s 500 or so credit unions over the next four years, with many under-performing unions merging with stronger counterparts.

The legislation will incorporate the key recommendations from the much-anticipated report of the Commission on Credit Unions, which was published yesterday.

That report said that the movement still has an important role to play as an alternative lending model to the banks; but that it is in need of change in line with the broader financial services sector.

“There are underlying weaknesses in the credit union model, which points to the need for credit unions — including strong ones — to undertake a timely evaluation of their thinking on where they are headed,” the report stated.

It found that, since 2006, costs have doubled and income has declined at Irish credit unions, with many being “significantly under-lent”, with loan-to-asset ratios at historic lows, meaning unions’ share of investment holdings is high.

It said this adversely impacts on income generation, as the return from investments tends to be lower than interest received on loans.

It also stated that, out of 403 unions looked at, 51 had reserves worth less than 10% of their assets, while 25 could be classed as being “seriously under-capitalised”.

“There is evidence of a wide disparity in credit union performance, with larger credit unions tending to perform better than their smaller counterparts,” the report added.

However, despite its many findings, the Commission’s report declined to estimate how many credit unions are likely to seek mergers.

This, it said, was down to the proposed system of restructuring being on a voluntary basis; with unions’ choosing not to be assessed if they so wish.

While the commission said that a significant funding requirement might be needed to restructure the credit union network, it also declined to offer a figure.

Overseeing the sector’s restructuring will be the Credit Union Restructuring Board — made up of industry, Government and Central Bank representatives — which is set to be functioning in the next two months.