Let’s give credit where it’s due

Although Berehaven Credit Union has been forced to close its doors, it’s not a given that others will follow, says Martin Sisk

Credit unions are ‘financial co-operatives, owned by members’.

THERE have been a number of assumptions made in the national media in recent days: That the Irish credit union movement is in difficulty and that the liquidation of Berehaven Credit Union is somehow indicative of what’s going to happen for many of our credit unions. This is simply not true.

The liquidation of Berehaven Credit Union is an extremely rare occurrence. This is a point that has been reiterated by the Central Bank since the announcement about Berehaven was made. However, what happens at this particular credit union will not impact any other credit unions around the country. Each credit union operates as an autonomous entity and so the financial situation at one credit union will not affect another. All member’s savings are protected under the Government’s Deposit Guarantee Scheme and so members should not worry that they will lose their money.

Despite what has happened in Berehaven Credit Union, the Irish credit union movement remains, to this day, one of the strongest in Europe, and credit unions in this country continue to be a lifeline for people in local communities, offering accessible financial services to people who have had the door closed on them by the banks.

Credit unions were established more than 50 years ago to provide people with a secure place to save and access affordable credit, and this remains the case today. In general, credit unions remain robust and well capitalised, and the most recent data available shows many positive indications. As of the end of March, total assets in Irish League of Credit Unions-affiliated credit unions in the Republic of Ireland amounted to €12.6bn (up from €12.47bn in Sept 2013). Confidence in credit unions has again been demonstrated by the fact that the number of members, 2.87m, has risen by almost 70,000 in the last 12 months.

Furthermore, savings in ILCU credit unions are up 1.6% for the six months to March to €10.6bn (following from an increase of 1.1% for the full year to Sept 2013).

Perhaps most encouraging of all is that gross loan arrears have reduced substantially in recent years and now stand at €676mn. Also, it should be noted that total gross arrears have fallen for nine consecutive quarters in a row. Uniquely, credit union members also pledge their savings as security against their loans which further mitigates risk. Of a total loan book of €3.74bn, total savings attached were €1.49bn, which implies that on an aggregate basis 40% of the loan book is covered by shares. Credit unions are also required to set aside loan provisions to cover loans in arrears and provision held are now in excess of €700m, in addition to other capital reserves. Credit unions are required by the Central Bank to hold minimum reserves of not less than 10% of total assets and ILCU affiliated credit unions had €1.91bn in capital reserves at March 2014, which is some €650mn in excess of the Central Bank requirements.

The ILCU represents the interests of credit unions in their dealings with Government, the EU, regulatory bodies, accounting and taxation authorities, among others. It does this by ascertaining the views of credit unions, then representing them at meetings and other events, preparing position papers, and so on. Where it is believed that aspects of the legislation or regulation of credit unions is unfair or unduly onerous, the League may lobby to rectify the situation. We are currently involved in a campaign regarding lending restrictions enforced by the Central Bank which we believe often prevent credit unions from lending to members with proven ability to repay their loans.

This can prevent credit unions from lending to members who have had to extend the term of their existing borrowings, but are now meeting their obligations. Credit unions traditionally were specialists in providing small loans to their members. However, there is now a real fear that, due to excessive regulation by the Central Bank, credit unions are not as well placed to service members’ borrowing needs and people may instead be forced to turn to moneylenders, both licensed and unlicensed.

The ILCU also administers the movement’s Savings Protection Scheme on behalf of its affiliated credit unions. Its current purpose is to assist viable credit unions whose capital or reserves have fallen below the level required by the regulatory authorities.

In relation to Berehaven Credit Union, the scheme had made provision for assisting a voluntary transfer to keep the Berehaven office and services open, by bringing about the transfer of Berehaven Credit Union to another credit union on a voluntary basis. However, this option was found not to be feasible by the Central Bank.

Credit unions are different. They are financial co-operatives, owned and controlled by their members, servicing the financial needs of their communities on a not-for-profit basis. Advocating a philosophy of mutual self-help this is a service that we intend to provide and promote now and in the future, to ensure that ordinary people have a secure environment for their savings and access to modest, affordable credit.

-Martin Sisk is president the Irish League of Credit Unions

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