Caution over credit union growth

By Geoff Percival

The Central Bank has given a broadly upbeat assessment of the credit union sector, but has warned it remains far from being long-term financially secure.

It said challenges still face the sector and pointed to higher costs and declining income.

In its third report on the financial condition of credit unions, the Central Bank noted positive progress in the areas of new lending, arrears reduction, and increased reserves.

It said total sector assets currently stand at a record high of €17.2bn, total sector loans amount to €4.5bn and total savings — which continue to outpace loan growth — amount to €14.3bn.

The latest review covers the five years from the end of March 2013 to the same date this year.

By March 2016, the average loan to asset ratio had fallen from 35% to 27%, but has remained at that level since then.

However, income for the six months to the end of last March “continued to trend downwards”, the Central Bank said.

The decline was driven by a reduction in investment income and is reflective of the low interest-rate environment, it said.

Provision write-backs and bad debts recovered have had a positive impact on overall credit union income since 2015.

However, the Central Bank warned this cannot be relied upon in contributing to future income.

“The report reflects the continuing challenging business environment for credit unions,” said the Central Bank’s registrar of credit unions, Patrick Casey.

The report also noted 53 credit unions — with assets of €100m or greater — now account for 55% of the total sector’s combined assets.

Kevin Johnson, CEO of representative body Cuda, said that loan applications via social media now account for up to 20% of all loan enquiries for some branches.

“The loan growth across many of our 48 credit union members using our digital marketing tools would exceed the average outlined in the Central Bank report,” he claimed.