Why a surge in savings is a problem for credit unions

Report shows a 'striking' gap between savings and loans at credir unions. Picture: iStock

Credit Union members lodged more than €1bn in extra savings over the past 12 months due to the impact of the pandemic creating challenges for the sector, according to a new report from the Central Bank.

The latest Financial Conditions of Credit Unions Report shows total savings across the sector have reached a five-year high of €16.32bn. The average credit union member now has savings of €4,700.

However, over the same period lending, which is the principal driver of overall income for credit unions, remained static falling marginally from €5.11bn to €5.09bn. The report said Covid-19 has impacted credit union lending - both in terms of a reversal in the lending growth that was evident in 2019 and a small increase in reported arrears. 

Average loan arrears rose slightly from 4.6 per cent to 4.8 per cent over the 12 months to the end of September.

The report notes that credit unions came into the crisis with strong reserves and liquidity which have remained relatively stable during the pandemic period. However the registrar of Credit Unions Patrick Casey said the key challenges for credit unions is to grow lending in order to keep pace with savings.

“A continuation of the trends identified in this report could see many individual credit unions facing sustainability challenges over the medium term. Credit union boards must therefore focus on the risks that flow from the continuing imbalance between savings and loans," he said.

Mr Casey said that as thoughts turn to recovery in the economy, now is the time for credit unions to focus on evolving the business model by using available lending capacity to serve members’ needs on a safe and sound basis. 

The report also notes the ongoing restructuring of the sector with the continued emergence of larger credit unions with assets of at least €100m and a reduction in the number of smaller credit unions with assets less than €40m.