Credit union regulators should allow ‘prudent’ lending increase - review

Report comes as credit unions look to increase lending to take on established banks

The Central Bank of Ireland should support credit unions coming up with “prudent and sustainable” plans to increase the loan portfolios of a sector that has been dogged since the financial crisis by low levels of lending and profitability, according to a review of supervision of the sector.

The authors of the review, undertaken last year by international credit union regulators drawn from the UK, US and South Africa, said the Central Bank should engage with credit unions on plans they develop stemming from legislation enacted last year to boost the movement.

“As appropriate and where it is demonstrated that such proposals progressed by credit unions are prudent and sustainable, increased lending should be prioritised to balance the strategic risk associated with the declining profitability of the sector,” the report said.

“We are encouraged by the movement towards a supervisory system that provides greater discretion, within a prudent range, for well-performing credit unions with strong risk management cultures.”

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The report added that there is “is continued scope to enhance the data received from credit unions, analysis of the data and reporting on the data by the [Central Bank’s Registry of Credit Unions] back to the public and sector for their own use”.

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The review team said there have been improvements in how the Central Bank has performed its functions regulating credit unions since it was last subject to an international peer assessment in 2019. However, it highlighted scope for improvement in the areas of the risk management and management of operational risk, including cyber security, fraud, and climate-related risks.

“Technology, risk management and innovation in the credit union sector in Ireland continues to lag other advanced jurisdictions,” the report said.

“As credit unions seek to prudently develop through innovative service offerings, they will need to adopt a proactive approach to management of outsourced services in line with existing legislative requirements to ensure related risks are identified and mitigated.”

It added that the registry will need to adapt its approach to ensure that “mission-critical service providers to credit unions are prudently managing their risks”.

The Central Bank here 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. New laws allowing greater co-operation within the sector were enacted late last year.

The Irish League of Credit Unions (ILCU), which represents more than 90 per cent of active credit unions in the State, said this week that total loans across the sector rose 13.6 per cent to €5.56 billion in the 12 months to March.

The Central Bank registrar of credit unions, Elaine Byrne, said her team will consider the findings and recommendations of the latest peer review. “The Central Bank is committed to ensuring the protection by each credit union of the funds of its members and maintaining the financial stability and wellbeing of credit unions generally,” she said.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times