The Central Bank have informed me that they cannot comment on the position regarding individual credit unions. However, the Central Bank have informed me that in relation to distributions to members, which can take the form of payment of dividends and/or loan interest rebates, credit unions must comply with specific requirements set out in the Credit Union Act, 1997 (the 1997 Act). Specifically in relation to dividends, these are dealt with in section 30 of the 1997 Act which includes a provision that a dividend on shares, not exceeding the permitted maximum, may be declared at each annual general meeting of a credit union in respect of the preceding financial year by a resolution passed by a majority of the members present and voting.
Credit Unions do not require Central Bank permission for the payment of dividends to their members. In accordance with Central Bank credit union regulations, where a credit union has recorded a deficit in its annual accounts and is proposing to pay a dividend and/or a loan interest rebate to member, it must inform the Central Bank in writing at least 3 weeks before it gives notice of its annual general meeting.
In a circular issued to all credit unions in September 2020, the Central Bank set out its expectations on the payment of dividends and rebates in respect of the financial year- end 30 September 2020. This set out that, in the context of the 2020 year-end, credit unions must be cognisant of the significant risks posed by the COVID-19 pandemic and Brexit impacts potentially yet to be fully realised, not only to their own business models but to the wider economic environment. The Central Bank also highlighted the importance of (1) maintaining and building adequate levels of reserves, including adequate operational risk reserves, which is key to ensuring credit union financial stability and resilience; and (2) the protection which capital reserves provide against the potential macroeconomic impacts of disruptive events, including capacity of credit unions to absorb credit or other losses that may arise.
More specifically on distributions for the 2020 year-end, given the current level of risk and uncertainty regarding the economic outlook, the Central Bank expects all credit unions to take a prudent approach so that the level of capital reserves in each credit union is managed appropriately. Credit unions are expected to give priority to the maintenance and building of their reserves over the payment of any distributions to members and accordingly, it is not expected that proposed distributions (dividend or loan interest rebate) by credit unions would feature in the 2020 financial year.
Where a credit union may be considering the potential for a proposed distribution, they are expected to contact their supervisor in the Registry of Credit Unions at an early stage to clearly outline the rationale for proposing such course of action, taking account of liquidity and operational resilience positions and the need to demonstrate prudent forward looking capital reserve management in the current environment.
The Central Bank understands that a very small number of credit unions plan to pay a small/nominal dividend to their members this year following engagement with the Central Bank and that these are subject to the requirement under the 1997 Act for member approval of a resolution on the payment of the proposed dividend at the credit union’s AGM.