€1bn worth of credit union loans in arrears

ONE in seven credit unions failed to keep enough reserve cash to meet emergencies and loans worth over €1 billion are in arrears.

The Government-appoin-ted Commission on Credit Unions said yesterday that 56 (14%) of the 408 credit unions in the country do not hold the required 10% of their assets in reserve.

Commission chairman Donal McKillop predicted “a decline” in credit union numbers and expects future mergers.

At the launch of the Commission on Credit Union’s interim report, Prof McKillop said 27 credit unions were “significantly undercapitalised”, with a reserve ratio, on average, of less than 7.5%, with some holding a lot less.

Meanwhile, the Financial Regulator and deputy governor of the Central Bank said he wants to halt variable interest rate hikes and warned banks he will be “breathing down their necks” to ensure compliance with his mortgage arrears code.

Speaking in UCC Matthew Elderfield said that while banks may be hiking interest rates to make up for money lost on non-profitable tracker mortgages, such moves may be “self-defeating” as they could push more customers into arrears on their mortgage payments. He warned that if they don’t heed his warning, the Central Bank is prepared to seek draft legislation allowing either the Central Bank or the Competition Authority to cap the interest rate a bank can charge.

Mr Elderfield said “the awkward truth is that it is likely that repossessions will increase over time”, but that banks should strive to minimise such repossessions.

These repossessions would likely be faced by homeowners with “unsustainable debt”.

Mr Elderfield said that as a shareholder in many Irish banks the Central Bank has “the opportunity to influence management actions”.