Credit unions at ‘inflection point’ as Bill passes key stage, Minister says

Minister of State with responsibility for financial services Jennifer Carroll MacNeill said credit unions are at “an inflection point”, as legislation allowing for greater co-operation within the sector passed a key stage on Wednesday and is expected to be enacted by the year end.

The committee stage – or third of a five-stage legislative process – of the Credit Union (Amendment) Bill saw the adoption of two amendments to the draft laws brought by the Minister. The tweaks will allow credit unions to pass on members to other credit unions for services, regardless of whether the referring credit union provides the service or not. They will also enable credit unions to club together to provide loans, either through loan participation or syndication constructs.

Ms Carroll MacNeill said officials have had to manage a “tension” while drafting the Bill, between maintaining the benefit of the local community model of credit unions while allowing them to develop and broaden their offering.

[ Credit unions to take part in larger loan syndications under new plans ]

“I believe all credit union members, irrespective of where they live, should have access to the full services of community banking,” she said. “All members should, for example, be able to open a credit union current account, apply for a business loan and should be able to access a mortgage product.”

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The Credit Union Development Association (Cuda) estimates that credit unions’ mortgage lending volumes, which are set to amount to €200 million this year, will double each year “for the next couple of years” at least as a result of the legislative overhaul.

“For local community organisations seeking larger loans, there will be more access to affordable finance options as their local credit union will be allowed to co-lend and share loans with other credit unions.”

The Central Bank eased some of its lending restrictions in early 2020 to allow credit unions to engage in more long-term lending, including home mortgages and business lending.

The regulator estimates that the Irish movement, which has been dogged since the financial crash by low levels of lending, has unused capacity to provide as much as €2.1 billion of mortgages and business loans, including additional leeway that credit unions can apply for to increase loan concentration limits. However, industry observers say that some of the more progressive credit unions that offer mortgages and business loans have maxed out their lending capacity in these areas.

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Ms Carroll MacNeill said that she hopes that the Bill will be enacted by the end of this year and that the Central Bank “would be well prepared” to push through follow-on regulations “quickly”.

The latest annual report from the regulator on the financial conditions of credit unions shows the sector had €28.40 out on loan for every €100 of assets as of September 2022. The ratio is down from 49 per cent in 2007. The optimal loan-to-assets ratio is widely viewed to be about 50 per cent.

There are currently 200 credit unions in the Republic – down from 428 at the end of 2006, on the back of a wave of consolidation. However, more than 400 branches remain across the State, according to the Department of Finance.