Report warns credit unions’ low level of loans is ‘unsustainable’

Credit unions across the country have an “unsustainable” level of loans compared to their asset base, an unpublished report from the Oireachtas Finance Committee will conclude.

The report, obtained by the Irish Examiner, will also call for a change in the law to allow credit unions to help fund housing agencies in order to address the housing crisis.

However, its starkest warning is about the low level of loans across the credit union sector compared to its asset base.

“The loan-to-asset ratio [a key indicator of sector viability] currently stands at 26%,” the 42-page report will say. “This position is unsustainable and requires immediate redress to boost the ratio to the 40%-50% ratio that is necessary for long-term viability.

“The figure should be at a minimum in the 40%-50% ratio range and on that basis the committee recommends that the issue be addressed by all stakeholders as a matter of urgency.

“As the overall asset base of the sector has increased, at approximately €16bn, the scope and opportunities to lend these assets has diminished. The net result is that the average loan-to-asset ratio of the Irish credit union sector is currently 26%.”

This figure “is a cause of deep concern” and fears arose in the course of hearings that the present position is unsustainable and threatens the viability of the sector.

“There are only five countries out of 105 with credit union movements which have a loan-to-asset ratio inferior to that in Ireland,” the report will state. “This statement of fact illustrates the starkness of the situation confronting the sector.”

The report was drafted following the committee’s examination of the review of the credit union sector and the implementation of the recommendations of the commission on credit unions report 2016.

The committee’ report will also suggest that rules be changed to allow credit unions evolve and develop beyond their current limits, which could allow them enter the mortgage market.

“The committee is of the opinion that the objective of this review is to ensure that a framework is delivered which will allow qualifying credit unions to develop and grow beyond the current permitted lending limits and concentration limits in a meaningful way and therefore allow qualifying credit unions to make the necessary infrastructure investment into new areas such as mortgages to facilitate this,” the report will state.

The report, due to be released later this month by committee chairman John McGuinness, also calls for consideration to be given to the feasibility of enabling credit unions to utilise their finances to lend collectively to approved housing bodies to address the current housing crisis.

Credit unions should be “empowered” in order help fix the housing crisis and the Government should change the law to make that happen, the Oireachtas finance committee will recommend.

A draft copy of the committee’s report, obtained by the Irish Examiner, is set to recommend a new tiered approach to the oversight and control of the credit unions based on their size.

However, it is a recommendation, proposed by committee members, that the credit union sector should be unleashed to help the housing crisis which stands out.

The committee is urging that consideration be given to the feasibility of enabling credit unions to utilise their finances to lend collectively to approved housing bodies to address the current housing crisis.

According to the report, the committee is of the opinion that the sector faces significant challenges and requires renewed vigour less it becomes irrelevant.

“The time to act is now,” the report will state. “The sector has substantial assets, the goal is to grow and develop the movement in line with wider socio-economic transformation.”

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