EU approves €280m credit union scheme

A €280m scheme, mostly state-funded, to help some of the country’s 374 credit unions restructure has been approved by the European Commission.

The scheme, €25m to support amalgamations and €30m of which is earmarked to stabilise specific credit unions, is initially coming from the State but will be refunded by the bodies helped, and from a levy on the sector. Credit unions, provided they have a certain minimum level of reserves, can apply for capital injections to raise their reserves, while those below the ratio will have to be wound up, or merge with stronger credit unions, and can apply for aid. The Central Bank will assess the viability of each credit union which is part of the conditions for the operation of the scheme and as required by the troika.

Only credit unions with up to €100m in assets will be allowed benefit from the aid. The average Irish credit union has assets of about €35m each.

Credit unions were badly hit during the banking crisis, forcing some to merge and others to disband. Regul-ated by the Central Bank, they are required to keep a minimum reserve to absorb losses before touching deposits.

But during the crisis, several of the credit unions fell below the minimum reserve requirements, although this now been righted. Capital shortfalls in the sector was identified as a problem by the Troika.

Last month the annual accounts to June 2014 from the Irish League of Credit Unions showed the majority of credit unions were in surplus.

This is the first time that a scheme for the restructuring of small financial institutions has been agreed by the EU under new rules.