Lending restrictions imposed on handful of credit unions

A handful of credit unions, including Mitchelstown Credit Union in Co Cork, have been instructed to cease lending to businesses due to concerns about their financial stability.

The instruction to stop lending to businesses came from the Financial Regulator's Registrar of Credit Unions, Brendan Logue.

Mr Logue wrote to the Michelstown Credit Union recently to raise concerns about its performance which "threaten the financial stability of the credit union".

Speaking to The Irish Timesthis afternoon Mr Logue said similar restrictions had been placed on a "handful" of the other 419 credit unions although he refused to name them.

The Financial Regulator is working with up to ten credit unions which it views as having an “enhanced level of risk”.

Mr Logue said no restrictions on deposit withdrawal have been imposed on this small group of credit unions. He said there had been a small increase in withdrawals from Mitchelstown Credit Union this morning but said “it is not of a serious nature and these withdrawals have declined since lunchtime.”

According to a letter from February 17th, excerpts of which were published in today's Irish Examiner, Mr Logue said: "A run on members savings took place last year and it is clear that the credit union would have difficulty surviving a repeat of this."

“You advised us that no contingency plan exists to deal with any of the potential threats to the credit union and this is a matter of great concern.”

In a statement, the credit union said it was solvent and was focusing on the personal needs of its members. "The board of Mitchelstown Credit Union wishes to confirm that all monies are safe."

He said an independent inspector was likely to be appointed to examine Mitchelstown Credit Union within “the next two days”.

“We have our own team of inspectors who we deploy on a regular basis to look into the affairs of credit unions. Where a specific investigation is necessary into an aspect of a credit union’s affairs we would frequently appoint an independent inspector under the Credit Unions Act.”

Mr Logue said he was very annoyed that confidential correspondence had been leaked. “I think it is entirely inappropriate [and] a very poor reflection on whoever did it. The person who leaked the information acquired it illegally. The letter was marked Private and Confidential”.

“We have issued a warning to the Credit Union to the effect that if we find evidence of any breach of confidentiality we would be quite prepared to institute a prosecution against that person.”

Asked about the level of arrears on credit union loans Mr Logue said “the international norm for arrears for credit unions is around 5 per cent and we think Irish credit unions are not that different . . ”

However, he said there was evidence of arrears levels having risen over the last year due to increasing unemployment and general liquidity problems.

In a statement this morning the Financial Regulator said the 419 credit unions registered in the Republic, “taken as a whole, have very adequate reserves and liquidity".

The Regulator’s statement added that under the new deposit protection legislation “credit union members deposits are protected to the extent of €100,000 and the fund of the Savings Protection Scheme of the ILCU is a protective funding mechanism which is available to this credit union.”

For deposits greater than €100,000, Mr Logue said the “Irish League of Credit unions operates a savings protection scheme and it is a substantial fund available for the protection of credit unions and depositors.”

He added: “There are 419 credit unions in Ireland. If you take them in consolidated form they have quite adequate reserves and quite adequate liquidity, it is only in a very small minority of cases where there are issues that mean we have to intervene very directly and very forcefully.”

“The average credit union is in good shape and any savers there should not be concerned about their savings."