Arrears and bad debts in some of the the Republic's 400 credit unions are rising, the sector's regulator told an Oireachtas committee yesterday.

In a submission to the Joint Committee on Finance and the Public Service, the Registrar of Credit Unions, Brendan Logue, said that as these institutions' operations had grown they had begun moving into new areas, such as business lending.

"This type of lending requires greater underwriting skill because of the inherently greater risks involved and specialist skills are thus required to manage such risks," he said.

Mr Logue warned that where they move away from their main business of providing lending and saving services, they expose themselves to greater risk, which calls for stronger control.

"It is very important for credit unions to have at their disposal modern and reliable technology to facilitate such a higher level of control," he said.

He added that his office has been working with credit unions to tackle these problems. Mr Logue pointed out that credit unions have €11.8 billion in savings under their management, 12.5 per cent more than a year ago. He suggested that the increase in the cash held by credit unions was putting pressure on them to increase their dividend payouts to members, which could be putting pressure on them to take unacceptable risks.

Mr Logue ran into controversy recently when he instructed Monaghan Credit Union not to pay €731,000 in dividends because it had to write off €11.9 million in bad debts, leaving it with a loss for 2005 of €3.8 million. Following talks with the union's board, he revoked the decision and allowed Monaghan Credit Union to pay its dividend.

Liam O'Dwyer, chief executive of lobby group the Irish League of Credit Unions (ILCU), told the committee that while some loans from individual unions were "technically delinquent", in most cases there was no question of the money not being repaid.

"Some of our members are from very poor backgrounds, we lend the money to them and sometimes they are not able to meet the terms as originally set out in the loan agreement. That's counted as a delinquent loan," he explained.

However, Mr O'Dwyer said the debtors generally repaid the money. He said this flexible approach was central to the service credit unions provide. Credit unions can only loan up to 20 per cent of their total loan books for more than five years. The ILCU wants the Oireachtas to introduce legislation to ease these restrictions.