Credit unions are to be issued with a guidance note on how to avoid lax lending policies following "inappropriate" unsupervised lending by individual officers at a number of credit unions last year.
Brendan Logue, the registrar of credit unions, said it was "regrettable" that practices at a small number of credit unions had required active intervention by his office in 2006.
Speaking at the annual general meeting of the Credit Union Development Association (Cuda) on Saturday, he said many of the problems had arisen from "a predictable pattern of a failure of governance" that allowed officers to conduct inappropriate business lending without proper supervision.
"It is not acceptable that members' savings should be lost by the operation of inappropriate lending practices by certain officers or by the negligence of their boards in not supervising their activities adequately."
The financial regulator will issue a guidance note this year in order to "heighten awareness of the need for improvements in governance". A consultation process on the note will begin shortly.
The guidance note is expected to recommend that a credit committee and credit control committee at each credit union should follow clearly defined written policies and mandates.
Procedures for avoiding conflicts of interest should be put in place, while there should be special procedures for the approval and oversight of business loans.
Appropriate systems should also be established to ensure the integrity of loan records and accounting, including procedures to ensure that adequate provisions are made for bad and doubtful debts.
Mr Logue noted that investments by credit unions now accounted for approximately half of the operating assets of credit unions, with some large unions investing up to 80 per cent of their assets. He warned that this may pose a threat if credit unions experienced investment losses or sharp declines in returns.
"Credit unions should be mindful that it would be improper to attempt restoring a balance between loans and investments by engaging in lax lending policies or speculative lending in property."
