WRITING ON THE WALL - Berehaven Credit Union
LIKE many apparently sudden demises, Berehaven Credit Union’s was in fact a long time coming.
The institution, blighted by bad habits and irregularities, was placed under restrictions that made it impossible to get its house in order.
Such was the state of its affairs that the Central Bank decided it would be too expensive and unfair to lump the institution onto the books of one if its well-run neighbours.
As a result, the credit union in the heart of Castletownbere has been wound up.
This week’s High Court order had its roots in a report commissioned by the Central Bank on July 10, 2010.
Moore Stephens Nathans were asked to examine its loan book, but during the early stages of their work “serious matters in relation to connected party loans were discovered”.
On November 9, 2010, the registrar of credit unions met the board members at Berehaven. A week later, they had resigned.
Three months down the line, directives were issued that severely restricted the ability of BCU to do what would be considered normal business for a credit union while it dealt with legacy issues.
Some of its issues have since played out away from the Central Bank.
This year, BCU received judgment mortgages against Matt Heffernan and BCU’s former treasurer, Tina O’Sullivan.
Mr Heffernan, an ex-director of the Irish League of Credit Unions, also had loans from credit unions in Limerick.
He and Ms O’Sullivan, and the manager of BCU, Yvonne Power, had invested in a golf resort in Spain. There were other investments in Bulgaria and in Cork City.
Some of Mr Heffernan’s investments were funded with loans approved by Berehaven Credit Union.
These arrangements offered a window into the problems identified by successive examinations of BCU’s books.
On July 1 this year, a report was delivered to the Central Bank by the independent consultants, MKO Partners. According to the bank, this found that four years after the first review of Berehaven, key, internal, control issues had not been fully addressed. The common threads running through the 2010 and 2014 third-party reports were said to be:
nLoans were given out without proper assessment of people’s ability to repay;
nThere was a high volume of loans given out to a relatively small number of borrowers;
nThere were irregular practices in how loans were approved;
nThere had been a failure to report loans to people connected to the credit union, including loans to its officers;
nCertain borrowers were given softer loan repayment deals;
nThe credit union’s ledger was paper-based and there were weaknesses in the preparation of its management accounts.
Despite the list of irregularities levelled at the credit union for its activities before 2010, the breaches that eventually brought it to the brink were minor by comparison.
In 2012, the credit union was told not to issue any loans that exceeded €3,000 unless a person kept more savings in their accounts than they wished to borrow.
On November 6, 2012, a loan was given out for €4,000.
In February 2013, the credit union was issued with the same direction.
On May 17, 2013, a person was given a loan of €5,000.
In a statement on Wednesday, the board of the credit union said the restrictions placed on its ability to grow its loan book stopped it from generating more income.
The consequence of this was that it could not raise the necessary cash to show the bank it had enough reserves to meet the requirements.
The bank made repeated requests for the credit union to commit to finding sufficient reserves, regardless of the restrictions.
But it ran out of patience. Members of the credit union were oblivious to what was going on behind the scenes in recent weeks.
On June 4, the bank issued an order for Berehaven to find €1.35m to replenish its reserves by 4pm on June 25.
On June 18, Berehaven asked the Irish League of Credit Unions for €1.35m in support to help it reach the 10% reserve target.
On June 25, Berehaven asked the Central Bank to facilitate an orderly transfer of business to another credit union.
There were two prospective bidders to take over the credit union. But these would have required the Central Bank to pay more to the new operators to take on the business than the estimated cost of winding up the credit union and whittling down its €11m loan book.
The details of the bids were kept private in the resolution report. The latest bid was received on July 10, but it was deemed to be too costly.
The bank also decided that the “significant and pervasive weaknesses” that were identified in the practices of BCU would require a lengthy due-diligence process for any potential buyer.
“Given the backdrop of poor governance and oversight of BCU’s assets and liabilities for a sustained period, the bank would now question whether it would be appropriate to burden any third-party credit institution as a transferee with the risks attaching to BCU,” the resolution report said.
The effect of the closure will be felt on the Beara Peninsula, but people should not be out of pocket.
Depositors will receive a cheque within the next 20 days.
An assessment of the deposit book has already indicated that there should not be any member whose deposit is not covered under the State guarantee scheme.
This means nobody had more than €100,000 in their accounts and should get all their money back, even if the credit union does not have the resources to pay it.
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