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Credit Unions

Dáil Éireann Debate, Wednesday - 27 May 2020

Wednesday, 27 May 2020

Questions (62)

Joe O'Brien

Question:

62. Deputy Joe O'Brien asked the Minister for Finance if an impact assessment has been carried out on the status of credit unions here in view of the Covid-19 pandemic; the supports that can be offered to credit unions; his views on the future of credit unions here; and if he will make a statement on the matter. [7426/20]

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Written answers

First of all, I wish to inform the Deputy that both I and my officials have engaged extensively with the credit union representative bodies since the beginning of the COVID-19 pandemic.

I spoke with the credit union representative bodies, by conference call on 23 March 2020 and again on 22 April 2020 to discuss the challenges and emerging issues facing the credit union sector as a result of the COVID-19 crisis. I welcomed the ongoing work of the credit union sector to support members in difficulties due to COVID-19 and acknowledged the health and safety risk front line staff are facing every day to ensure continuity of services to members. I noted the vital work the credit union sector is carrying out, which builds on the government’s call for solidarity and community spirit which is synonymous with credit unions.

In addition to the above, my officials have had weekly calls with the credit union representative bodies and weekly engagement sessions with the Registry of Credit Unions in the Central Bank to review any emerging issues in the sector resulting from the pandemic, and to ensure smooth information flow between the sector and Government. The Credit Union Advisory Committee (CUAC) is also meeting weekly.

I recognise the key role that credit unions play in the delivery of financial services in local communities across Ireland, the need for which is heightened at this time. Credit unions account for approximately one third of the consumer credit market and are well positioned to provide access to credit to support the recovery from the current crisis.

In terms of the overall financial position of the sector, credit unions have come into this crisis with a strong reserves position, with a sector average reserve ratio of 16% as at 31 December 2019. This highlights that many individual credit union boards have chosen to prudently maintain additional reserves over the 10% regulatory minimum requirement. Credit unions have also maintained high levels of liquidity, with a sector average liquidity ratio of 39% as at 31 December 2019. Notwithstanding the strong financial position of the sector at December 2019, sustainability is a challenge for many credit unions.

Generally speaking, the current business model of Irish credit unions is suffering from low growth rates in loan demand over recent years (outpaced by stronger savings growth). Surplus funds not lent out to members are appropriately not exposed to undue risk, and they yield limited investment returns reflective of the current low interest rate environment. The operational business model lacks scale efficiencies and suffers from high operating costs. This has translated into low loan to asset ratios (sector average 28%), low return on assets (sector average 0.6%) and high cost income ratios (sector average 82%).

The economic outlook arising by virtue of COVID-19, including reduced demand for new lending, has increased the challenges the sector is already facing. As a result it was agreed that the CUAC would report to me by 30 June on challenges and opportunities for the sector, incorporating implications of COVID-19, the role credit unions could play in the economic recovery and any relevant recommendations.

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