I propose to take Questions Nos. 90 to 92, inclusive, 94 and 95 together.
Credit unions have an important role to play in providing credit in local communities around the country and I am supportive of safe and responsible lending by credit unions. I am very much aware of the issues currently facing the credit union sector.
To address lending issues the Registrar of Credit Unions at the Central Bank has imposed lending restrictions on some credit unions. These restrictions are in most cases, intended to be short-term in nature and kept in place until a credit union has addressed particular concerns advised to that credit union. The recent publication of the Central Bank's first PRISM risk assessment report on credit unions highlights issues identified in a number of areas including lending. The Registrar of Credit Unions informs me that lending restrictions are reviewed on a regular basis. Section 14 of the Credit Union and Co-operation with Overseas Regulators Act 2012 provides for the appeal of certain decisions of the Central Bank, including some lending restrictions, to the Irish Financial Services Appeals Tribunal.
Where lending restrictions are imposed they tend to take the form of a restriction on individual loan size or on commercial lending activity and in some cases, a limit on the total lending permitted each month. At this time fewer than 10% of all credit unions have a restriction in place which limits the total amount of lending within the month, while close to 40% of all credit unions have a restriction on commercial lending activity. Currently, the average loan rate in the sector is just over €6,000 and about a dozen individual credit unions have lending restrictions that limit the amount loaned to less than €10,000. This ensures that the vast majority of credit unions can continue to make loans significantly greater than the average loan for the sector.
Section 35(2) of the Credit Union Act 1997 permits a credit union to have up to 30% of its loan book outstanding for more than 5 years and up to 10% of its loan book outstanding for more than 10 years. Based on the most recent information provided by credit unions to the Central Bank in the December 2013 quarterly prudential returns, average lending over 5 years as a percentage of gross loans was some 11%, while average lending over 10 years as a percentage of gross loans was about 2%. These figures indicate that, in general, credit unions are currently well within the limits as set down in the 1997 Act.
The Section 35 requirements require that a credit union must not approve further agreements for additional credit where an existing loan has been rescheduled unless a member's ability to repay all credit owed and the proposed additional credit has been clearly established. Where such circumstances have been established, a credit union may grant additional credit to a member with a rescheduled loan where that rescheduled loan has performed in accordance with the new terms for an appropriate period, in most cases not less than one year.
The Central Bank issued a prudent lending circular for credit unions and expects credit unions to apply prudent lending standards to the granting of all new loans or top-ups of existing loans and to have systems in place to ensure that such applications are fully assessed to confirm the member's ability to repay the loan. This includes assessing a member's creditworthiness before concluding a credit agreement, which is required under Regulation 11 of the European Communities (Consumer Credit Agreements) Regulations 2010 for credit agreements between €200 and €75,000.
On foot of recommendations from the Commission on Credit Unions, section 11 of the Credit Union and Co-operation with Overseas Regulators Act 2012 substantially amends section 35 of the 1997 Act. These amendments provide for new Central Bank regulations to deal with a range of lending issues including:
- the classes of lending that a credit union may engage in, for example business lending;
- the duration of loans;
- large exposures; and
- concentration limits.
Section 11 will be commenced in tandem with new Central Bank regulations on lending, which are to be introduced as part of the tiered regulatory approach recommended by the Commission. This tiered approach will address a range of areas including lending, investments, savings, borrowings, additional services, reserves and liquidity. The Central Bank has recently held the first of its consultation processes on the tiered regulatory approach and is considering the views submitted by credit unions and others.
I am satisfied that the safety of members savings and the security of the credit union sector as a whole are central to any actions taken by the Registrar of Credit Unions.