Dáil Éireann Debate, Tuesday - 19 October 2021
373. Deputy Thomas Pringle asked the Minister for Finance his views on whether the ongoing increase in regulatory costs for credit unions is justified; the basis upon which it started out on; if he proposes changes to make credit unions more responsive to their communities; and if he will make a statement on the matter. [50938/21]
View answerThe credit union sector pays four material levies and charges. Three of these levies – Deposit Guarantee Scheme, Resolution and Stabilisation – are used to build up funds that are available to protect member’s savings. The fourth levy is an Industry Funding Levy set by the Central Bank to offset the cost of regulation.
Industry Funding Levy
Since 2004, the amount of the Industry Funding Levy payable has been capped at a rate of 0.01% of its total assets as at 30 September of the previous year. The balance of regulatory costs has been funded by the Central Bank in accordance with the provisions of the Central Bank Act, 1942 (as amended).
The cost of regulating the sector has increased over recent years with the emergence of the necessity to increase the intensity of supervision of this sector. In 2018, the credit union sector contributed €1.7 million (circa 9% of the total costs incurred in regulating the sector).
During 2019, I approved the Central Bank request to recover 50% of regulatory costs on a phased basis, starting with a 20% recovery rate for the 2019 levy (levied in 2020), moving to 35% in 2020 (levied in 2021) and to 50% in 2021 (levied in 2022). I have also recommended that credit union contributions should not increase beyond the 50% target until: 1) the levy trajectory has reached the planned 50% rate, at which time the impact on the viability of the sector will be better understood; and 2) a public consultation regarding increasing the levy rate for credit unions beyond 50% is undertaken, which would include a regulatory impact assessment of such a change on the sector.
Given that all other financial services sectors are at, or moving towards, 100% recovery, the move towards 50% in respect of credit unions, with further increases at that time being subject to consultation and Ministerial approval, is measured and takes account of the role that credit unions play in Irish society. Exemptions from levies result in a burden on the tax-payer through state subvention.
Resolution & Stabilisation Levies
Following a review of the Resolution Levy in 2019 I announced a reduction in the levy rate which resulted in a reduction of €4 million per annum from €9 million in 2019 to €5 million from 2020, a 44% reduction. The Resolution Levy has been kept at €5 million since this time.
Following review in 2020 it was decided to reduce the Stabilisation Levy for 2021 from €3 million in 2020 to €300,000, a reduction of 90%. The Stabilisation Levy for 2022 has similarly been kept at approximately €300,000.
In combination Resolution and Stabilisation levies have fallen 56% from €12 million in 2019 to €5.3 million in 2021 and 2022.
Developments and growth in the credit union sector
In terms of supporting and enabling the sector to be more responsive to their communities, the following are some recent developments which highlight the potential of the sector to fulfil a role in relation to their communities.
Review of Lending and Investment Regulations
The Central Bank has in recent years completed reviews of both the lending and investment frameworks. Following introduction of the new lending regulations on 1 January 2020, credit unions now have a combined capacity to provide up to approximately €1.1 billion in additional SME and mortgage loans, with further lending capacity available to credit unions who can comply with certain conditions or on approval by the Central Bank.
As at June 2021, credit unions had a combined mortgage and SME loan book of circa €372 million, an increase of 18% year-on-year.
The revised investment regulations took effect on 1 March 2018. Under these regulations, credit unions are permitted to place their surplus funds that have not been lent to members in a range of investments including Tier 3 Approved Housing Bodies (AHBs). I am pleased to share with the Deputy that two credit union backed funds have received approval from the Central Bank and will be able to invest up to €900 million in these funds, which will subsequently lend to Approved Housing Bodies (AHBs). This will provide an additional funding channel for AHBs who have a large role to play in the recently announced Housing for All Action Plan.
SME Lending
Nineteen credit unions were approved in early 2021 by the Department of Enterprise, Trade and Employment for participation in the Covid-19 Credit Guarantee Scheme. Further development of SME lending in a controlled manner could also assist credit unions in growing and diversifying their loan book.
SME lending has grown 5.6% year on year to end June 2021.
Access to Finance for Retrofit
The Government significantly increased the funding available to support retrofit in recent years. My officials have been engaging with the Department of Environment, Climate and Communication, the Department of Public Expenditure and Reform, and the Sustainable Energy Authority of Ireland to support increased credit union participation in green retrofit loan schemes. Several credit union retrofit initiatives have been launched.
Current Accounts
The Deputy may also wish to note that credit unions can seek approval from the Central Bank to offer additional services such as current accounts and debit cards. Over 60 credit unions have been approved to provide the Member Personal Current Account Service (MPCAS).
