Credit unions ‘may be main lender in 50 towns within five years’

Credit unions are on track to be the main lenders to households and small businesses in up to 50 towns across the State within five years, according to an industry body, as the Government pushes new legislation through the Oireachtas aimed at supporting the movement.

The Credit Union Development Association (Cuda), which says it represents 50 “of the most progressive” financial institutions in the State, said that Irish credit unions should also see their total loans double to €11 billion over that timeframe.

The local credit unions in Tullamore, Co Offaly, Dundalk, Co Louth, and Navan, Co Meath, are already the largest household and SME lenders in these towns, including mortgages, following years of retrenchment by mainstream banks as much of the lending by remaining banks has become centralised at their head offices, Cuda has estimated.

The Credit Union Amendment Bill 2022, aimed at enabling credit unions to co-lend and collaborate more at a time when the mainstream banking sector is shrinking, passed through the Seanad last week as it makes its way through the legislative process.

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The Bill allows for the establishment of corporate credit unions, which would permit a group of credit unions to take equity stakes in a new corporate entity that would enable them to share resources and opportunities. It aims to enable credit unions for the first time to refer members to other credit unions if they do not offer a particular product — and to participate in the loans of other credit unions.

The draft laws will also give the Minister for Finance the authority to set a minimum interest rate for the industry, fixed at 1 per cent per month. This will give credit unions more flexibility to price risk in a rising interest rate environment, according to the Department of Finance.

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“Credit unions are currently operating within outdated legislation — legislation that is not fit for purpose in a modern era, but with this new expansive legislation, we anticipate that credit unions will become the primary household and SME lender in up to 50 towns across Ireland within the next five years,” said Cuda chief executive Kevin Johnson.

“Many credit unions have already broadened their range of loan offerings to include personal loans, mortgages, business loans, secured and unsecured, community and agri loans. Through these enhancements to the Credit Union Act they will be able to grow these initiatives to allow more credit unions deliver them to more people.”

The Department of Finance retail banking review, published last month, said that credit unions “could play a greater role in the provision of retail banking products and services in the coming years”, as the number of retail banks in the market shrinks to three amid the exits of Ulster Bank and KBC Bank Ireland.

The average credit union in the sector in the Republic had just €27 out on loan for every €100 of assets as of September 2021, close to historically low levels, according to Central Bank of Ireland figures. The ratio is down from 49 per cent in 2007 and ranks among the lowest across credit union movements worldwide. The optimal loan-to-assets ratio is widely viewed to be about 50 per cent.

Ongoing consolidation across the movement has resulted in the number of credit unions in the State falling to about 200 from 428 at the end of 2006.