Arrears rise 23% among credit union members

ARREARS AMONG credit union members rose 23 per cent to €813 million in the nine months to June 2011, as borrowers and credit unions alike felt the impact of long-term unemployment and economic austerity.

Figures from the Irish League of Credit Unions, which represents 496 credit unions in Ireland, show that some 14 per cent of outstanding loans are more than 10 weeks in arrears.

The league’s chief executive, Kieron Brennan, said it would be difficult to predict the pattern of arrears in the year ahead.

“It depends where the national economy goes. With three million members, the credit unions are very reflective of the national picture.”

He said it shouldn’t be surprising that there has been an increase in the rate at which credit unions have taken legal action against borrowers with unpaid debts. Figures from business information service Vision-net published earlier this week show a 13 per cent rise in such cases in 2011 compared to 2010.

“In these difficult times, we are pleased to see credit unions taking a greater duty of care, because it is the members’ money,” Mr Brennan said.

Reserves held by credit unions have increased from €1.7 billion to €1.86 billion and now stand at 13.45 per cent of assets, up from 12.7 per cent in June 2010. This places the credit unions ahead of the regulator target of a 10 per cent reserve rate by 2013.

Provisions for bad and doubtful debts have also increased to 12.2 per cent of the loan book, up from 8.4 per cent in 2010.

“It means credit unions are well-positioned to cover off any writedowns over the next few years,” said Tom Kiely, from the league’s monitoring department.

Credit unions advanced approximately €1.65 billion in new loans over the period, while the average loan size in the Republic was €7,900, the league said.

It criticised the Central Bank’s recent introduction of tighter lending restrictions and said unions were forcing credit unions to turn away customers, undermining confidence.

“The relationship between credit unions and their members has been fractured,” said Mr Brennan. “Some credit unions are using up their monthly allocation by the second week of the month and are having to say no to long-standing customers. They’re just told no, despite the fact that the credit unions have huge resources.”

About 70 per cent of credit unions are subject to the new lending restrictions, which in many cases restrict the amount that a credit union can lend in any one month to €100,000.

Mr Brennan said he believed that some customers who were turned away were then approaching moneylenders for loans, which he said was “a sad indictment of our society in 2011”.

Credit unions in numbers

(September 2010-June 2011)

50,000- the increase in the membership of credit unions

€5.7bn- the value of outstanding loans, down 8.1 per cent

€11.8bn- the value of members' savings, down 1.4 per cent

€813m- loans in arrears for more than 10 weeks, up 23 per cent

€86m- the sum written off in bad debts over the period