Easing of lending restrictions offers credit unions hope

More than 80% of credit union applications, seeking the removal of lending restrictions reviewed by the Central Bank, have to date been approved as the sector battles for greater freedom to lift lending levels from a 15-year low.

Many credit unions have been highly critical of the Central Bank’s restrictions which they claim are unreasonably onerous.

Under the regulations, credit unions are limited to lending up to 30% of their loanbook over five years and up to 10% over 10 years.

The rules make mortgage lending unviable, thus closing off a lending stream many credit unions are desperate to access.

Lending over 10 years accounts for just 2.18% of total loans in the credit union sector.

New figures provided to Fianna Fáil finance spokesperson, Michael McGrath show that 59% of the applications received by the Central Bank have now been reviewed.

Of these, 83% have had their lending restriction lifted with 17% of applications rejected.

Consequently, the percentage of credit unions operating under the Central Bank’s restrictions has fallen from more than half to 39%.

Mr McGrath welcomed the removal of lending restrictions for many credit unions but claimed it merely proved that they weren’t warranted in the first instance.

“Credit unions continue to carry a disproportionate burden of regulation and the Government is showing little interest in fighting to secure a viable long-term future for the credit union movement,” Mr McGrath added.

“Credit unions need to be allowed to engage in meaningful long-term lending and the fact that just over 2% of total loans in the credit union sector are over 10 years is evidence that the regulatory regime is not permitting this.”

The Cork South-Central TD also called for credit unions to be afforded the freedom to roll out new services that would allow them to compete more effectively with banks.

In its annual review, ILCU said regulatory issues continue to threaten credit unions’ ability to provide financial services to their communities.

“Our vision is to have locally based, accountable credit unions providing a full range of personal financial services to members and all who wish to avail of our services. Credit unions want to evolve and change but are increasingly frustrated at the regulatory roadblocks put in our path,” ILCU chief executive Ed Farrell said.

Speaking earlier this month, Registrar of Credit Unions, Anne Marie McKiernan, said the limits had been introduced as “carefully calibrated short term measures” in the midst of financial crisis.

Their ongoing presence had “led to a certain acceptance of the situation in many credit unions, rather than an impetus to improve standards to have them removed”, she said.

Ms McKiernan added that it was surprising some credit unions did not engage in the review process, given the criticism levelled at the restrictions.

Lending by the some 350 credit unions across the country has slumped to its lowest level in 15 years at €3.5bn to June of this year, according to the Irish League of Credit Unions’ annual review (ILCU).

The figure represents a fall of €166m on the same period last year with the ILCU laying some of the blame at the door of the restrictions.