Hangover sets in after Celtic Tiger credit binge

Lingering personal debts will strangle cashflow and delay economic recovery, warns Christine Cullen

VISION-NET’S figures on court judgments secured by credit unions against their customers shed light on another dark corner of Ireland’s credit crunch.

With credit unions following consumers and businesses through the courts last year for over €14m — up slightly on the figure for 2011 — the battle to have debts repaid shows no signs of relenting.

Ireland’s credit binge during the Celtic Tiger is catching up with us. It seems taking the legal route to secure repayments is gaining traction.

In 2010, credit union customers had 532 judgments worth €9,064,091 awarded against them. By the end of 2012, that figure had soared to €14,330,412 across 785 judgments.

Predictably, Dublin topped the list last year with 322 judgments worth €3m, followed by Cork with 94 judgments totalling €2.4m.

Meanwhile, credit unions in Sligo and Longford avoided pursuing any customers through the courts.

Vision-net’s analysis showed many credit unions were lending more than they can afford.

The figures raise questions about the depth of credit suitability screening carried out before loans were approved. They raise questions, too, about the choices made by consumers and business-owners who over-reached when making borrowing decisions.

Since it is only possible to gather information on registered judgments, it is likely that the scale of commercial and consumer debt is much higher.

As long as consumers and businesses are struggling to repay their debts and creditors are fighting to be paid, recovery in the domestic economy will be slow.

The knock-on contagion impact of lingering debts can strangle cash flow and cause stagnation in demand.

The Credit Union Bill, published by the Government last year, seeks to create a modern regulatory framework in which credit unions can develop prudently, lend responsibly, and restructure to protect depositors’ savings.

Credit unions are entering a period that must be defined by sound governance, robust systems, and strong balance sheets. But this change in how credit unions operate, returning to first principles as community banks, must be matched by prudent borrowing by customers according to their means.

For both lenders and borrowers, running rigorous background risk assessments before making financial decisions is the best way to avoid debt default. These checks, using professional risk assessment services like vision-net.ie and creditcheck.ie can generate invaluable business intelligence that make decisions safer and more informed.

Smart and strategic decision-making is likely to yield a return and avoid a loss for lenders and borrowers. The more we know about the business environment the better we can trade and grow. Although it may be difficult to resolve the country’s debt hangover, business and consumers can avoid deficits with prudent research and planning

*Christine Cullen is managing director of vision-net, which monitors and provides information on all registered Irish firms.