Credit unions face an uphill struggle to stay relevant with many failing to address regulatory challenges or find new sustainable revenue streams, according to the sector’s registrar Anne Marie McKiernan.

Speaking at the Credit Union Managers' Association (Cuma) Spring Conference on Wednesday, the Central Bank-based registrar also said that despite the introduction of tighter lending restrictions, many credit unions had yet to adequately address weaknesses in policies and controls to meet regulatory standards.

A little over half of all the 374 credit unions in the State remain subject to some form of lending restrictions.

“ We have used lending and other restrictions as temporary measures to reduce risks until our concerns have been addressed. Our expectation is that the sanction of a lending restriction would motivate credit unions to take all necessary steps to effect its speedy removal. Regrettably, this has not been our experience across the sector,” said Ms McKiernan.

The registrar said that while important progress had been made in terms of compliance by credit unions over the past year, the level of non-compliance was “still to high for comfort.”

Ms McKiernan said that in the case of restructuring of credit unions, voluntary plans remained the preferred solution where possible. However, she warned that where a voluntary solution could not be effected within a reasonable timeframe, directed resolution by the Central Bank remained an option.

Highlighting the difficulties facing the sector, Ms McKiernan said that since September 2013, loans to members had decreased by almost 10 per cent to €4billion. While the sector average loan-to-asset ratio has continued to decline and is now at 30 per cent, over 200 credit unions are below this ratio.

Ms McKiernan said total interest income has fallen by almost one half since 2009 and while average sector arrears at the end of last September were around 17 per cent, almost 10 per cent of credit unions had arrears exceeding a third of their loan book. She added the average dividend for 2014 is continuing to weaken and is currently below 1 per cent.

“Credit unions need to improve their revenue-earning capacity by tackling weak loan-to-asset ratios and to offer the range of services that meet members’ expectations. Each credit union also needs to consider any threats to viability, be they operational inefficiencies, loan quality, governance issues, marketing weakness, or other issues,” she said.

“A clear challenge is the reluctance of some boards and management to proactively address viability issues and develop new sustainable business models to deal with the current challenges. In this respect, we remain concerned about the quality of strategic thinking and planning in many credit unions. This is demonstrated in many strategic plans that contain generic or high level aspirations rather than a clear road map for the credit union’s future. Having no clear vision or strategy is not an option when you consider the scale of challenges which your sector is facing.”

Ms McKiernan said while the Central Bank did not underestimate the level of change involved for credit unions , it had yet to see a sufficiently structured and collaborative response to the scale of business model transformation required to ensure a vibrant future.