Credit Unions facing 'significant' risks and challenges, Central Bank warns

The Central Bank said there is still a heavy dependency in the sector on unsecured personal lending

The Credit Union Development Association (CUDA) said the sector can only achieve its potential through continuing with their business model change.

Credit unions remain heavily dependent on unsecured personal lending and need to “evolve” their business models, the Central Bank has said.

While noting an improvement in economic conditions in the sector, with reserves improving, the Central Bank said the credit union movement still faces “significant risks and challenges”. Loan-to-asset ratios remain close to historically low levels, though, increasing savings growth has slowed this year.

The Central Bank said there is still a heavy dependency on unsecured personal lending two years on from the widening in regulatory capacity allowing for house and business lending.

“Credit unions need to focus on evolving their business model and take advantage of opportunities that are available,” said the Central Bank’s registrar of credit unions, Patrick Casey, who said there is an underlying sustainability challenge arising from the long-term divergence between lending and savings.

A government policy review of the credit union sector is ongoing and the sector wants it to lead to further widening of legislation.

The Credit Union Development Association (CUDA) said the sector can only achieve its potential through continuing with their business model change. CUDA chief executive Kevin Johnson said this has to be enabled by “an appropriate legislative and regulatory framework”.

He said “given the right structure”, credit union sector lending could double from €5.25bn to €10.5bn.

CUDA said it looks forward to amended legislation allowing unions to prosper.