Credit unions could become ‘significant’ mortgage players under new proposals

The Central Bank is proposing to ease the long-term lending restrictions imposed on Irish credit unions to allow them grow their mortgage and commercial loan books.

The move was immediately welcomed by the Irish League of Credit Unions, which said it would allow credit unions to become “significant players” in the mortgage market.

Under the current regulations, there are limits on the amount that credit unions can lend out over five and 10 years . Only 30 per cent of a credit union’s loan book, for instance, can be lent out over five years while only 10 per cent can be lent out over 10 years.

In a consultation paper, the Central Bank proposes removing these lending maturity limits and replacing them with “concentration limits” for house and commercial lending, the two main forms of long-term lending.

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Sufficient

Under the new proposals, all credit unions would be allowed to lend for housing and commercial loans to a limit of 7.5 per cent of the total assets of the union.

An increased concentration limit of 15 per cent would be available, subject to the Central Bank’s approval, for unions that can demonstrate that they have financial firepower.

“The Central Bank considers that it is only those credit unions of sufficient scale who would have the capability to avail of this increased concentration limit – credit unions with total assets of at least €100 million may be indicative of those credit unions who will be capable of demonstrating the necessary scale, available resources and capability to undertake increased house and/or commercial lending,” it said.

Currently there are 264 credit unions in the Republic, 53 of which have lending in excess of €100 million.

In its report, the Central Bank said the revised limits would provide scope for nearly €1.3 billion of overall sector lending to be advanced for house and commercial loans.

The regulator also undertook to identify the potential impact of introducing these new concentration limits. Its analysis suggests that all credit unions with the exception of two would have additional scope for increasing their combined house and commercial lending.

Supportive

“The Central Bank is supportive of credit unions growing their loan books on a prudent basis, recognising that some of this growth may come from longer-term lending as part of a balanced loan portfolio, to diversify credit risk by borrower, loan category and duration,” the report said.

The Central Bank's registrar of credit unions, Patrick Casey, said: "Revisions would allow those credit unions with sufficient financial strength, competence and capability, to undertake additional home mortgage and commercial lending."

Irish League of Credit Unions chief executive Ed Farrell welcomed the proposals, noting the league has long campaigned for a review of the long-term lending limits.

" While credit unions have always held a significant share of the consumer lending market, essentially this represents just 13 per cent of overall household lending," Mr Farrell said.

“We have been keenly aware of the need to expand our reach in the residential mortgage market in order to ensure credit union members, and consumers in general, are benefiting from real competition and diversity,” he added.