Credit union organisations have welcomed the publication this week of a Bill aimed at enabling credit unions to co-lend and collaborate more, at a time when the mainstream banking sector is shrinking.
The Credit Union (Amendment) Bill 2022, championed by Minister of State with responsibility for financial services Sean Fleming, follows on from a commitment in the programme for Government to grow the credit union movement through expansion of services and encourage further community development.
The draft legislation will allow for the establishment of corporate credit unions, the Department of Finance said on Thursday. This would permit a group of credit unions to take equity stakes in a new corporate entity that would enable them to share resources and opportunities.
It aims to enable credit unions for the first time to refer members to other credit unions if they do not offer a particular product – and to participate in loans of other credit unions.
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The Bill will also give the Minister for Finance the authority to set a minimum interest rate for the industry, currently fixed at 1 per cent per month. This will give credit unions more flexibility to price risk in a rising interest rate environment, the Department said.
It would also open the door for credit unions to compete in the credit cards market, where annual rates range in the Irish market from 13 per cent to 26 per cent.
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“For years credit unions have operated within the confines of outdated legislation, which was not fit for purpose in a modern era,” Kevin Johnson said, chief executive of the Credit Union Development Association (Cuda). The Bill “offers a unique opportunity to credit unions to offer and deliver more benefits through enhanced products and services to existing and future credit union members,” he said.
David Malone, CEO of the Irish League of Credit Unions, said he is looking forward to the quick package of the Bill through the Oireachtas.
The Department of Finance retail banking review, published on Tuesday, said that credit unions “could play a greater role in the provision of retail banking products and services in the coming years”, as the number of retail banks in the market shrinks to three amid the exits of Ulster Bank and KBC Bank Ireland.
“Credit unions have a strong and trusted brand, they are present in communities throughout the country, and have been developing their product offering,” it said. “The credit unions are already a significant player in consumer credit, and they are making inroads in the current account, mortgages and SME segments of the market.”
The review said the movement should “develop a strategic plan to deliver business model changes that would enable the sector to safely and sustainably provide a universal product offering to all credit union members”.
However, the average credit union in the sector in the Republic had just €27 out on loan for every €100 of assets as of September 2021, close to historically low levels, according to Central Bank figures.
The ratio is down from 49 per cent in 2007, and ranks among the lowest across credit union movements worldwide. The optimal loan-to-assets ratio is widely viewed to be about 50 per cent.
Ongoing consolidation across the movement has resulted in the number of credit unions in the State falling to about 200 from 428 at the end of 2006.
