Central Bank to review credit union regulations

The Central Bank of Ireland is planning to review the regulations around how credit unions can invest their members' funds, in a move that could open the way for them to support social housing projects here.

In a speech over the weekend to the annual general meeting of the Credit Union Development Association (CUDA), Elaine Byrne, the deputy registrar of credit unions, said: "We will review the regulations to consider whether it is appropriate and prudent to facilitate investment by credit unions in other investments, such as for example social housing, by broadening the permitted investment classes in the regulations."

This move could open the way for credit unions to invest funds in the provision of social housing with approved housing bodies, while also achieving a greater return on their money than is available to them in the current ultra-low interest rate environment.

Under the existing rules, credit unions are permitted to invest in a range of specified classes. These include Government securities, deposits and bank bonds, and collective investment schemes made up of these instruments.

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These investments are subject to specified maturity and concentration limits.

“Notwithstanding any potential changes that may be made to the regulations, the legislative requirement for credit unions to ensure investments do not involve undue risk to members’ savings will remain the overriding factor which must inform all credit union investment decisions,” Ms Byrne said. “All investments must be in line with the risk appetite of the credit union and there is a need for credit unions to fully understand the risks associated with all investments, including the level of capital protection.”

Currently active

Ms Byrne also told CUDA members that about 20 transfers or mergers of credit unions remain in the pipeline. These were commenced under the auspices of the Credit Union Restructuring Board (ReBo), which has since concluded its work. She noted that 289 credit unions are currently active in Ireland, down from 377 at the beginning of 2015.

Her address also outlined how there had been a 16 per cent increased in loans advanced by credit unions in the year to September 2016 – up from €1.9 billion to €2.2 billion.

However, the total loans outstanding only increased marginally to just more than €4.1 billion. The average arrears declined from 13.5 per cent of total loans in 2015 to 9.7 per cent last year.

Ms Byrne said that while there was “some evidence” of improvement in standards among credit unions, the regulator had concerns about a variety of issues.

“We are still seeing an unacceptable number of credit unions that have failed to display strategic focus by boards, and we encountered limited financial skill sets and weak management structures – highlighting concerns around quality of governance and systems of control in those credit unions,” she said.

“Risk, compliance and internal audit functions were not well embedded and previous issues set out in risk mitigation plans had not been adequately addressed. In addition, weaknesses in credit underwriting practices were often apparent.”