I welcome the Minister of State, Deputy Fleming.
Credit Union Sector: Statements
I am delighted to have the opportunity to take part in this debate. This is my second visit to the Seanad in a week to discuss credit unions. I am encouraged to see the work of the credit union sector being given such prominence in public debate. I watched with interest the Seanad debate on the future of banking that took place in May 2021. I noted at the time that the role credit unions can play in community banking was raised many times during the debate.
My aim and the aim of the Government is to assist the credit union movement to become a strong, resilient and collaborative movement in Ireland. I believe that my appointment as the first Minister of State with responsibility for credit unions, together with the commitments in the programme for Government, demonstrates how strongly this Government supports the sector. The programme for Government contains commitments to review the policy framework within which credit unions operate; enable and support the credit union movement to grow; support credit unions in the expansion of services to encourage community development; and enable the credit union movement to grow as a key provider of community banking in the country. Those are direct quotes from the programme for Government.
When I consider growth of credit unions, I primarily consider growth of lending in order to increase both their income and their sustainability. The review of policy framework is a culmination of work officials in the Department and I have done over the course of the last 18 months. During 2021 submissions were received from all the representative bodies and the Credit Union Advisory Committee. I have met with all representative bodies; the registrar of credit unions; the Credit Union Advisory Committee, CUAC; the credit union CEO forum; collaborative ventures; and many individual credit unions. In total, I have held 27 stakeholder meetings with credit unions and over 100 proposals were submitted in writing. A summary list of proposals has been shared with the credit union representative bodies and a final stakeholder engagement session has been scheduled for early March. Legislative proposals arising will go to the Cabinet shortly thereafter.
I would like to share with Senators some of the detail of the proposals ahead of their submission to the Cabinet. I would like to give them a flavour of my thought process and the types of proposals likely to emerge. The first objective of the review is to recognise the role of credit unions. Credit unions have been part of and at the centre of local and workplace communities for over 60 years, tailoring their products and services to match their members' needs. We will consider a proposal which recognises the role of the sector in developing volunteers and acknowledges its role as a large co-operative movement in Ireland.
The second objective is to support investment in collaboration. Collaboration is necessary for the sector to grow. Even the largest credit unions do not have the scale to develop opportunities on their own. In my engagements over the past year, I have seen evidence of collaborations already under way. Sixty-six credit unions are now providing current accounts through collaborative vehicles, an increase of 15 in the last year. Three collaborative vehicles have been approved to support lending of up to €900 million to approved housing bodies. Every credit union now has the opportunity to invest in funding for approved housing bodies. That has happened in the last six months. Nineteen credit unions are approved for the State's revised Covid-19 credit guarantee scheme. Five credit unions have been approved for the Brexit loan scheme. Involvement in these schemes is a great example of co-operation between Government Departments and agencies and the credit union sector. The Government recently announced €8 billion of increased funding for retrofitting.
Credit unions' role as providers of unsecured credit makes them a natural partner of the Government to support our climate change agenda. Many credit unions provide retrofitting loans supported by collaborative ventures. Forty credit unions are collaborating with Cultivate to provide agri-lending. Twenty-four credit unions have partnered with Peopl to provide general insurance products to members and many more provide assurance products.
While there are positive developments, my message to the credit union sector today is to keep going and keep building on this good work. The Government is prepared to do all it can and will act where it is appropriate. However, it is also incumbent on all of those working in the sector, including representative bodies, directors, executive management and collaborative ventures, to be ambitious and to embrace collaboration and business model change as a matter of urgency. Credit unions will not be able to take the opportunity provided by the exit of Ulster Bank and KBC without collaboration to grow current accounts and SME enterprise and mortgage lending.
The third objective in the review puts forward proposals that will assist boards of directors to focus on strategic development. The proposals have been greatly assisted by the research conducted by the CUAC on the role of directors. This is a great example of data-driven research and analysis which greatly informs the policy debate and leads to concrete proposals.
The fourth objective is to improve members' services. The review takes account of the need and desire to keep improving services for members. Members should have access to the widest range of services available and they should be able to access these services no matter which credit union they are a member of. Those who have met me over the past 18 months know that I have carefully considered the value of the common bond to the members. I would not like to see the common bond being a barrier to members accessing badly needed financial services. The proposals put forward under this objective consist of practical improvements to the common bond. This will assist credit unions in providing more products to more members, while protecting the essence of the common bond. These proposals should help credit unions to improve their competitiveness by increasing the flexibility of some of the rules around the common bond. Given the changing landscape of the retail banking sector in Ireland, now is the time to implement these changes and modernise the way the sector interacts with its members.
The fifth objective relates to transparency of regulatory engagement. There is a need for better co-ordination within the credit union sector in its engagement with the Central Bank and also with other State bodies. The review will seek to include proposals to support regulatory engagement while respecting the need for regulatory independence.
The review will not include any specific proposals to change regulations and-or regulatory limits.
I thank the Acting Chairperson and my Seanad colleagues for the opportunity to discuss the credit union sector. Given the role that credit unions play in Irish society, this is a topic worthy of discussion and debate. The Government does act to support credit unions.
Collectively, the credit institution resolution fund levy and the credit union stabilisation levy have been reduced, since 2019, by 56%. That is a reduction and a €6.7 million saving per annum for the credit unions. I look forward to hearing the views of my Seanad colleagues and thank them for their time.
I thank the Minister of State. Senators Casey, Keogan and Maria Byrne will each speak for seven minutes.
I welcome the Minister of State to the Chamber. As he has pointed out, we are again discussing a favourite topic of ours, namely, credit unions. We all have some history with the credit unions. I might sound a bit nostalgic when I say that my first savings account was with the credit union and the first few bob that I borrowed was from my local credit union. During my lifetime credit unions have been an integral part of every community in Ireland and it is important that they remain an integral part as we move forward.
We must recognise that the credit union movement is one of the most trusted brands among our people and maintain that situation. Maybe, with the work that we are doing here and the work that the Government has committed to doing on the future of credit unions, we will talk about the credit unions being a trusted brand in another 60 years in this Chamber, and how successful and important that brand is to communities.
The programme for Government clearly sets out that it needs to secure the future of the credit union movement. With that in mind, the Government appointed a Minister of State who would specifically be responsible for credit unions. I now acknowledge the work that the Minister of State has done in communicating with the credit unions during this transition period as we try to secure the future of credit unions. I acknowledge the amount of time that he has given to the credit unions and the amount of engagement that has taken place. I have seen on a one-to-one basis how he has engaged with credit unions. I think that must be acknowledged because following all of that engagement we will have a comprehensive package and will know how viable the credit unions can be into the future.
As somebody who has been in business, served the community and looked for money from credit unions I must say the following. The one thing that is beginning to leave society is personal contact with lenders. Our main banks no longer value personal contact and engagement because business is now done using a three-year business plan or a 20-page Excel spreadsheet that displays a load of figures, and one is given an answer at the end of the day. The credit unions do something different. They know the people in their communities and know the people they are lending to which is a situation that has value. That value is missing from the main banking sector or it has been lost over the last number of years. As anyone can see, there are fewer post offices in communities and fewer banks on the main street. Therefore, it is vitally important that the presence of the credit union remains at the heart of every community.
We have seen some significant changes over the last while. We have seen that lending has begun in the business market, which is a positive change. Asking small businesses to engage in the banking sector now, and go through the processes, reels and rigmaroles that they are asked to do, for what is a relatively small amount of money is realistically unacceptable. Let me give the example of the building of the Brockagh Resource Centre in my community. When extra funding of €50,000 was needed to finish the community centre it was easier for the people involved to walk to the credit union and knock on its door because they knew who they had to deal with rather than go into a heartless bank, which realistically only wants financial figures and takes no account of the person.
Credit unions have played a role in the Covid guarantee scheme for businesses. Indeed, we have seen a further expansion of the role played by credit unions in terms of Brexit. We need to build on all of that and extend. These measures have proved successful because businesses have been able to access credit unions unlike the banking sector.
The Minister of State said that the three credit unions have collaborated in order to lend to approved housing bodies. I shall mention one of the most frustrating things when I was here the last time and when I was a member of the housing committee. I will refer to the fact that we could not get the credit union sector involved in the delivery of social housing. That was not the fault of the sector but the fault of the Central Bank and due to numerous other things.
Today, I ask that we look beyond approved housing bodies. We must consider allowing credit unions to engage with local authorities and allow them to help deliver social housing the same as we have done with the approved housing bodies. I ask that because such collaboration is critical.
We have announced the retrofit scheme. It is another great opportunity because credit unions can provide low-interest funds so people can avail of the retrofit programme. Again, it comes down to the fact that the credit unions will know the people who apply for loans and it is not just figures at the end of the day.
The credit union movement is the one trusted brand in Irish society that we must maintain. I acknowledge and appreciate the work that the Minister of State has done with credit unions. We look forward to the credit unions being talked about in here in another 60 years in a very positive light, as we are doing today, because they are one of our most trusted brands and we must keep it that way.
I welcome the Minister of State to the Chamber. He has been instrumental in bringing the credit unions forward in terms of how we do banking in this country.
Now is an important time for credit unions in this country. As we come out of Covid and the economy picks up again, the reinvigorated movement of money around the country presents great opportunities to examine our financial systems and improve upon them.
There seems to be a joint understanding that the role of credit unions can be built up to better meet the needs of communities. Last month, the Minister spoke about the need for the unions to fill the gap. The further involvement of the unions in the mortgage industry would provide greater options to borrowers and help offset further consolidation of the banking sector.
Last week, Senator Boyhan referred to the call made by the Irish League of Credit Unions, ILCU, to the Minister of State. He said that the league would like the Minister of State to make the regulatory changes to enable credit unions to increase their footprint in the mortgage market and that the unions be enabled to become key providers of community banking as per the programme for Government. As the Minister of State then pointed out, last year the credit unions had a mortgage book of approximately €260 million, which is a figure that has grown 26% year on year. This is to be welcomed but it is a drop in the ocean when one appreciates that mortgage drawdowns hit €10.5 billion last year, and 2021 had the highest volume of mortgages granted since 2009 and the highest mortgage values since 2008. All of that shows that more work needs to be done.
I understand that the Minister of State told Senator Boyhan that he would meet representatives of the Irish League of Credit Unions and that legislation would come before the House in due time. I hope that the legislation will be developed with input from the ILCU as well as the Central Bank. I also hope that the Department of Finance will engage with all other stakeholders in a timely manner.
More broadly, the role of credit unions in community banking can see development outside of the mortgage market. A credit union can often provide a much more personal touch as it is staffed by locals from the community. Such a situation can be of great value whether to the people who are marginalised, vulnerable or less comfortable in a formal banking situation.
Additionally, credit unions offer an accessible line of credit for people with limited means. They can use credit unions for small deposits and withdrawals, allowing them to save what they have and get a loan if needs be. It allows individuals to have control over their finances that they otherwise might not have through a traditional bank. I would like to see credit unions become hubs for their communities to help people with their finances. They should be allowed to develop their financial support mechanisms. An area of research and development which will serve to future-proof credit unions is in digital currency. The decentralised aspect of digital currencies will allow further autonomy for personal finances and empower each individual to save, borrow and spend as they see fit.
The role the credit union has with regard to the marginalised is very important. We do not want to see our credit unions turning into what we now know as our banks. People who are marginalised, and those who may suffer from domestic abuse or be living in coercive relationships, may not have access to their own funding. It is very important that we make it as easy as possible for these people to be able to lodge what they can when they can without too much red tape. Credit unions throughout the country make a wonderful contribution to our economy. I would like to see more credit unions having access to ATMs in towns where banks have closed down.
I thank the Minister of State for coming to the House to discuss this very important topic. Credit unions are very much at the heart of their communities. Within half a mile of my house there are two credit unions. I took a look at their websites and what they have on offer. One of them was started by the Redemptorists. It is now an independent entity. It gives everything but it does not give mortgages. The other credit union I looked at has amalgamated with others to become a bigger entity than it was originally when it started in a local community. It has delivered a very worthwhile service and many people have availed of small loans to improve their houses, for education and to start small businesses. However, it is not large enough to give mortgages.
In his contribution Senator Casey referred to the fact credit unions are a lot more personable than banks because there are still staff that people can speak to. In banks now we are nearly speaking to a machine. This is the difference between credit unions and the banking sector. How many mortgages a credit union can offer depends on how much money it has. If it has given loans to the SME sector it reduces the number of mortgages it can give. I would like to see this area looked at. While I understand the credit union sector should not be able to borrow huge amounts of money, people like going in because they can talk to the staff. It gives certainty to people applying for loans.
The Minister of State referred to the retrofitting scheme. There is also the agricultural sector. Many farmers and people have taken out small loans. The fact they can pay them back over five or ten years is commendable. It makes it affordable for people. Some people might not be able to carry out the work in one go but they can talk to the local credit union and take out a loan and pay it back over an agreed term. Credit unions are very good at looking at insurance and advising people. This is what people need. People who are not good with figures or managing their money can go into the credit union. A payment plan can be put in place and the credit union works with them. This is commendable.
The work the credit union sector has done is fantastic but I would love to see it being expanded. The Minister of State said he would love to see them filling the gap being left by Ulster Bank and KBC, which are pulling out of Ireland. I would also like to see this. We have to work with the credit union sector to expand its offering. Older people in particular want to be able to talk to people about the work they want to carry out. Credit unions have put many people through their education. Recently I spoke to a family that had two members who studied medicine. It is quite a costly course. If that family had not been able to avail of a loan from the local credit union, those people would not have been able to go to college. They were very grateful for the support they received from the local credit union.
I began by saying credit unions are at the heart of their communities. Many people who avail of the credit unions' services live nearby. They are known personally to the staff. This makes a difference because there is personal engagement. Most people are in and out of the credit union every day of the week. Online banking has deterred many people, especially older people, from going near the bank. We need to expand the offering of the credit union service. I commend the Minister of State. He is committed to looking at the 100 observations submitted. This is commendable. I wish him all the best in his deliberations. I look forward to hearing the outcome once he has looked at the observations to see what is being proposed for the future of credit unions.
I welcome the Minister of State. Public banking is core to Green Party policy. The Minister of State has shown a commitment to looking at this. Credit unions are central to public banking. The reason public banking is key for us is not just because of the co-operative model. As others have said, it is also because of what it brings to a community. People feel that they have a stake in it and that it is their bank. This is what makes the difference. People trust it. We have all had credit union accounts. It meant something to us and we knew if we saved we could get something in return for it. We knew we were supporting others at the same time.
The reason this is before the Seanad is the call from the Minister of State for credit unions to have a greater role in the mortgage market now that KBC has left. I acknowledge this. The Minister of State is stepping up to the plate. He has already outlined the number of engagements he has had. We have known for quite some time the difficulties credit unions are facing. It is important to point out their function, particularly with regard to the SME sector. Credit unions fulfil a function that banks and other credit institutions do not fulfil and cannot fulfil. A lack of credit has continually been a barrier to growth in many micro, small and medium enterprises. According to the 2019 Indecon report about public banking in Ireland, despite the overall levels of new lending there has been a decline in the application rates for bank finance by the SME sector. It accounted for 35% of applications for bank finance in March 2014. This had declined to 20% by September 2018. This is alarming given the reliance in this country on the SME sector. I was happy to see that since then, the new lending regulations introduced by the Central Bank have increased credit unions' capacity to provide up to €1.1 billion.
This led to an 18% increase year on year in June 2021. However, it should only be cautiously welcomed, because there was a fall in lending in June 2020.
Another aspect that the Minister of State mentioned, and one that is very welcome, is the credit unions approved housing body fund, which was approved by the Central Bank and announced in September. It is really positive. I hope that it helps to succeed in delivering housing. I think Senator Casey made an excellent point when he suggested that the Government should look into lending to local authorities. The ability of credit unions to lend in other cases is still very restricted. This needs to open up to allow credit unions to prosper.
Quite apart from the credit unions, SMEs are the backbone not just of the Irish economy, but of Irish society. They employ over 1 million people in this country, representing over two thirds of the total employed in the enterprise sector. Credit unions come to the fore regarding the SME sector. There is still a huge unmet need in lending to SMEs in Ireland. The credit unions, perhaps as part of a wider public banking model, could form the basis of this. The difficulty that credit unions have faced around mortgages predominantly relates to the minimum reserve requirements. We have a huge glut of savings at the moment, with the Central Statistics Office reporting that €31 billion was saved by households in 2020 alone. Much of this is being saved in credit unions, which is great. However, a problem arises when the credit unions cannot actually lend this out due to lending restrictions.
There are new opportunities coming up that credit unions could be part of, particularly regarding the low-cost financing for retrofitting. Going back to the issue of the minimum reserve requirement, it makes it tough for credit unions to expand their lending. It is currently 10%, which is much higher than in other similar jurisdictions and much higher than banks in Ireland. It does not make sense to treat small credit unions the same way as larger credit unions, the largest of which has around €500 million in assets. A report released by credit unions recently found that the average reserve ratio was higher than 10%. It is actually closer to 17%. It is a crude measure to impose this one-size-fits-all approach to credit unions, when the equivalent rules for banks are based on risk. The principle should extend to credit unions as well. Perhaps the Government will consider changing that ratio.
In some ways, credit unions are not in competition with traditional banks, but in other ways, they are direct competitors. That is welcome, because we need that level of competition. The co-operative model does not mean that credit unions are stuck in the past. We have seen recently that innovation is possible without having to compromise on ethos. It was announced several months ago that hundreds of thousands of credit union members will have access to current accounts and debit cards after 16 credit unions came together to develop the offering. They have been able to offer this at a lower monthly fee than banks. It comes at a time when Irish banks have the highest mortgage interest rates in the eurozone. More competition from credit unions would bring this down.
This is coming as credit unions are banding together, which the Minister of State mentioned in his opening statement, through shared service entities, to provide a greater offering for their members. It needs to be encouraged, not restricted. The Irish League of Credit Unions has expressed concern at the exclusion by the Central Bank of many community-based credit unions from offering debit card services. It is really disappointing. All of those things together, including the kind of services that will attract people to credit unions, will help them grow. Ultimately, they will create better communities where people can feel welcome.
It is always good to see the Minister of State; I thank him for coming in. The credit union sector is one which we associate with local communities across Ireland. Indeed, it is very important to recognise at the outset what they are. They are financial co-operatives. I think there is a bigger conversation to be had regarding how we develop the co-operative sector. In that regard, I recommend that the Minister of State takes some time to look at the Sinn Féin policy document, Ownership Matters, that we produced a few years ago. It provides a blueprint on how to develop the co-operative sector. I know there are plans for legislation from this Government. We look forward to seeing them in the coming months.
Credit unions understand what strengthens a community. They are known for their great customer service. In fact, they claimed the top spot last year, and have been in pole position for the past seven years, for the best customer experience in Ireland at the CX Impact awards. Credit unions have had the highest scores across the six pillars of customer experience, that is, personalisation, integrity, expectations, time and effort, empathy and resolution. That will not come as a surprise to anyone who deals with credit unions, as I have done all my life and continue to through my local credit union in Castleconnell, County Limerick. One in every two people in Ireland has a credit union account. People trust credit unions. It is notable how visible credit unions are in their communities in comparison with commercial banks, especially when we see commercial banks closing down branches in towns and cities across the country, which has such a negative impact on communities and customers. Communities need their credit unions to thrive. There is so much unlocked potential there.
We need to look at how we can do more to unleash the potential of credit unions. That begins by addressing the issue of under-lending. The Sunday Independent quoted the Minister of State as saying credit unions should "fill the gap" left by the departures of Ulster Bank and KBC from the Irish market and start lending more mortgages. For more than two years, we have been hearing Government Ministers tell us how great the credit union movement is and how they see a real role for the credit union movement. However, the movement keeps telling us that it is being starved out of existence. Credit unions have already gone through massive consolidation over the last few years. They now have the scale to compete, but the Central Bank regulations are putting them to a competitive disadvantage relative to the banks. Credit unions can only lend 7.5% of their total assets for mortgages. A credit union with assets of €70 million, taking an average mortgage of €350,000, can only offer 15 mortgages under the current limits. This means that they are more or less locked out of the largest credit market in the country, the mortgage market. A special higher limit of 15% can be applied for, but only two credit unions have applied and been successful. The reason for that is that it is a waste of time, because they still will not be permitted the scale to compete.
Credit unions have €14 billion that could be used to compete in the mortgage market, but they are only allowed to use €1.5 billion. The mortgage market is worth €100 billion, meaning that credit unions can only go after a share of 1.5% of the market. That is peanuts. Moreover, banks only need to have 5% capital reserves for mortgages. The credit unions have to have 12.5% - more than double. It was not the credit unions that brought this country to its knees, it was the banks. However, the credit unions are being placed at a competitive disadvantage.
Last week, the Minister for Finance stated that work on the review of the policy framework for the credit union sector is "well advanced and we intend to issue proposals emanating from the Review for consultation shortly". Will this work? Unless the Government is willing to rewrite the legislation, then such a policy framework is likely to fail. One of the commitments in the programme for Government was to enable the credit union movement to become "a key provider of community banking in the country". We are getting further and further away from that happening.
In conclusion, I have a few questions for the Minister of State. One of the commitments in the programme for Government was to enable the credit union movement to become "a key provider of community banking in the country". Does the Minister of State acknowledge that this Government, which is almost at is halfway mark, has yet to honour that commitment at a time when we have some of the highest mortgage costs, house prices and rents on record?
I am aware that there is a policy framework review ongoing. Does the Minister of State accept that unless the Government makes the necessary regulatory changes, credit unions will not be able to significantly increase their footprint in the mortgage market? Credit unions have €14 billion ready to enter the mortgage market. The mortgage market is worth around €100 billion. However, credit unions are only allowed to use €1.5 billion, so they can only go after 1.5% of the market. What is the Government's plan to change that situation?
Banks only need to have 5% capital reserves for mortgages while credit unions have to have 12.5%, which is more than double. Does the Minister of State accept this places them at a competitive disadvantage relative to the banks, despite the banks being the ones who got the country into difficulty during the financial crisis?
The review is welcome, as is the impending legislation, but it strikes me there is likely to be a lack of ambition here. Without those regulatory changes, the fundamental problems that emasculate the credit union movement will not change, so we need to see more ambition. I hope in his response the Minister of State will indicate this ambition exists.
I thank the Minister of State for his engagement with this debate, which I among others called for some time back. I am delighted he has taken time to be here this afternoon. I listened attentively to his contribution. I acknowledge the commitment he has shown in tackling this issue and the level of engagement he has undertaken since he came into office. There is no doubt he has listened. As Senator Gavan outlined, the proof of the pudding will be in the eating, but I hope the lengths to which the Minister of State has gone to in listening to the credit unions will manifest itself in the final documents that will go to Cabinet for approval.
As many speakers have outlined, the financial landscape in this country has changed substantially in recent years. Many players, including Danske Bank and Ulster Bank to name a few, have left the pitch, packed up their financial suitcases and left town. This has left people with reduced service and, in some instances, with no service at all.
Credit unions are the one constant that remains in the financial market. They have stood by the people who supported them - the ordinary men and women of their local communities. They do so with one arm tied behind their backs. In many ways, they are competing with the mainstay banks but, unfortunately, are handcuffed in terms of the number of services they can provide to the public. The restrictions under which credit unions must operate have been well voiced in this debate and the Minister of State is well aware of them. Cash reserves, regulation and the levies are all strangling the credit union movement. We are very fortunate to have the credit union movement. We have fewer players on the financial pitch than ever before, so it is imperative for the communities they serve that credit unions are put on a level playing field with banks so they can provide as many services as possible.
I look forward to the Minister of State's summing up. I am heartened by the level of engagement he has undertaken. I sincerely hope the end product satisfies the credit unions in that they will be able to give a full service to the people they serve.
I welcome the leadership shown by the Minister of State on this issue. As many speakers have noted, the past ten years or so have been very tough in terms of banking in this country. There are still many people in this country who have been burned as a result of banks holding fire sales of loans and selling them to vulture funds. This left many couples across this island in no man's land and they are still there today. It is an awful tragedy but it is another day's work, so I will not go into it now.
Credit unions are community-based initiatives. Other speakers are certainly correct in saying they were not the cause of the crash. They are trusted financial organisations that are embedded in communities throughout this country and we need to do everything we can to ensure they are protected and to help them to grow. They are not banks and do not want to become banks. They want to use banking technology services to provide not-for-profit co-operative financial services to their members across all communities on the island.
We want to enable the credit union movement to grow. Without a change in the legislation or regulations, there will be little change. We need to see appropriate balance, consistent regulation and the levelling of the playing field with banks and post offices. The supervision and relentless restrictive regulation are suffocating. We want to see the policy framework strengthen credit unions' long-term viability. Fees are crippling credit unions. Regarding reducing capital requirements, the 10% minimum reserve is totally inappropriate, unnecessary and unrelated to risk. This also applies to long-term lending of five to ten years. We look forward to the Minister of State's proposals and making credit unions much more viable and giving them a safer future.
Cuirim fáilte roimh an Aire Stáit, an Teachta Fleming, go dtí an Teach. Cuirim fáilte roimh dhíospóireacht ar an ábhar seo a bhaineann le hearnáil na gcomhar creidmheasa trasna na tíre. Very few movements have impacted on this country more positively than the credit union movement. Its excellent work in communities throughout the country has been phenomenal, and the level of trust placed in it by its members is a testament to how well run the sector has been and how its priority has always been its members and the communities in which credit unions operate. I acknowledge the driving force that was John Hume, among others, behind the credit union movement across the island of Ireland. The strength of the credit union movement is a testament to his vision and work.
I am obviously most familiar with the credit unions in my county of Galway whose combined assets total just short of €1 billion and that offer a banking alternative to tens of thousands of members across the city and county. In fact, with the rationalisation and downgrading of the banking sector across county towns and larger urban areas in particular, the local credit union is now the only financial institution with a physical presence in many towns and villages.
We would expect our credit unions to finance much of the hundreds of millions required to fund the retrofitting of homes to meet our climate change targets and the ambitious retrofitting programme recently announced by the Government. At present, credit unions fund small loans that fund many activities such as cars or education. Many credit unions now offer current accounts and mortgages. In effect, they offer a full banking service. I was very pleased to see the Minister of State being given responsibility for credit unions. I expect it is a sign of the importance the Government places on the sector. I hope it means the needs of credit unions will be addressed so that they can better support their members and communities.
There has been a lot of rationalisation within the sector, with amalgamations of credit unions leading to more robust institutions with greater resources and security available to their members. The Department of Finance is conducting a policy framework review of the credit union sector. This review will guide policy for the sector over the coming years. It is very important we get the best possible outcome for the sector as a major banking force and for its members.
Credit unions operate under the 2012 legislation, which was introduced in the aftermath of the financial crisis and probably shows an excess of caution in dealing with the sector. While I would not advocate a wholesale relaxation of the rules around any financial regulation, there are sensible prudent measures we as legislators need to take to ensure our credit union sector can fulfil its role providing a full range of banking services to its members. Now we have a Minister of State dedicated to overseeing the sector, we must revisit the legislation to rebalance the relationship between the Minister of State and the Central Bank. The Minister of State might advise if this is within his plans.
The Central Bank will remain the fully independent regulator of the sector but it should be the Minister who sets the key policies and objectives for the sector. This is crucial to the credit union movement when it comes to setting minimum reserves and capital requirements, which is proving very problematic at present. The full capital requirement issue is very complicated and too technical to go into in detail in the time allowed; suffice it to say that the limits required by the Central Bank are seriously restricting the ability of credit unions to do what they were set up to do, that is, serve their members at communities.
On the issue of levies, credit unions are subject to several even though, as financial institutions, the vast majority of them played no part in the financial crisis more than ten years ago. Some of the levies have been reduced, as has been acknowledged by the ILCU, but the deposit guarantee scheme in particular, which costs credit unions in excess of €13 million per annum although the movement operates its own guarantee scheme, is not taken into account as an area of concern.
We have an opportunity to build a more vibrant, stronger community banking force if we re-examine the legislation of 2012 and adjust it to reflect the changes in the credit union sector since that time. A stronger credit union will, in turn, lead to a stronger community. It is in our hands, as legislators, to take the opportunity to allow the credit sector to expand and strengthen to the benefit of everybody. I urge all those with responsibility in these Houses, the Department of Finance and the Central Bank to do so.
I welcome the Minister of State to the House. I commend him on the steady manner in which he is going about his business and serving the people he is honoured to represent.
The manner in which credit unions have succeeded over the years has been phenomenally Irish. In my home town, Ennistymon, I was born and grew up next door to a credit union. That credit union has provided incredible support to the entire north Clare community, even branching out into towns such as Miltown Malbay and Lisdoonvarna. The credit union sector has supported and funded household extensions and car purchases and it has given people a quality of life that they would not be able to achieve through the banks. I very much welcome the Minister of State’s commitment to bringing the credit union sector into the modern era. I believe that, through his commitment, a commitment is being made by the Government to modernise the credit union movement. The movement has felt strangled and ham-fisted in recent years because it has not been in a position to move with the times. It has not been able to extend its loan book or offer the types of services people now expect from a financial institution. I realise the credit unions have pushed the limit as far as they can to provide such services to their customers, but, really and truly, the Government now needs to allow them to breathe and get them scope and the opportunity to help the next generation of Irish people in the way they helped previous generations. They need to be allowed to get involved in social housing to help those who are trying to secure affordable housing. They have a critical role in this regard. There are billions of euro on reserve in credit unions, and that needs to be released to play a role in tackling the housing crisis.
I agree with the proposal that the credit union movement should be involved in financing the retrofitting of homes. The Government’s recently announced significant advances and improvements in the form of financial supports for those who wish to retrofit their houses could be made even more possible and realistic if the credit union movement were involved. This is because it has partnered with communities and families for decades and funded the education of many thousands of young professionals who are trying to create their own homes. I am referring to proposals that would allow the credit movement to get involved in affordable housing and support retrofitting while being allowed to breathe and operate in the modern era, thus providing the financial services that people now expect from whatever institution they partner with.
I wish the Minister of State all the best with this measure, which is critical. I would like to believe that, by the end of the lifetime of the Government, we will see a credit union movement in this country that is somewhat similar to the public banking model in places such as Germany. The only bank we can rely on is a bank that captures the hearts and minds of the public and essentially becomes a public bank. We do not need to reinvent the wheel and set up public banking; what we need to do is equip the credit union movement essentially to become a de facto public bank.
I welcome the Minister of State. I am delighted to make a short contribution to the debate. I commend him on the excellent work he has done in this area. His series of meetings and engagements to move this matter forward is recognised by the credit union movement. I have been asked to pass that on to him. I acknowledge the work done by the current Minister for Public Expenditure and Reform when in opposition. He made a major contribution to moving this on.
It is important that we commit to strengthening the credit union sector. The institutions, which are not for profit and member-owned, are trusted and relied upon by communities up and down the country. The heavy regulations and low interest rate environment have put the credit union model under severe pressure, so reform is needed. It is vital that we review the policy framework concerning how the credit unions operate.
I am aware that we have pledged to enable and support the credit union movement to grow, expand its services and encourage community development. Recognition of the importance of credit unions is embedded in government, with dedicated ministerial responsibility for the first time. The Minister of State’s role in this regard has been significant.
We want credit unions to grow their lending. They have substantial deposits and investments but it is important that they increase their lending because this is how they will become sustainable. Legislative or regulatory amendments alone will not solve the financial challenges arising from the low or negative interest rate environment, muted credit demand, strong savings growth and high operating costs. To address these issues, credit units must develop their models and enhance collaboration.
We, as members of Government parties, recognise the importance of credit unions. The programme for Government contains commitments to review the policy framework within which credit unions operate and enable the credit union movement to grow. That is precisely what we are doing. We are almost at the final stages of this process, which is very welcome. The programme for Government gives a clear commitment to supporting the credit unions in the expansion of services to encourage community development.
In this regard, we have seen what has happened with the pillar banks. Huge swathes of society have been left without a banking service. I have referred to north-east Roscommon, where up to 10,000 people no longer have a local bank. The pillar banks have closed one by one, and there is more to come. Let us be clear: more pillar banks will close branches up and down the country. It is imperative that the next step we take politically be the right one for the credit unions, namely the step we have committed to in the programme for Government, which is to enable the credit union movement to grow as a key provider of community banking. A policy review that manages the status quo but fails to move on and provide another community-based platform for financial services will be a lost opportunity. I have no doubt that there are good initiatives coming down the road and no doubt about the Minister of State’s commitment, but it is important not to put this on the long finger. We need to get this through the system as quickly as possible and to have community banking put in place as quickly as possible.
I will leave it at that. I am delighted that the Minister of State is present and about his commitment. The credit union movement has a network of buildings and staff on the ground; now we need to deal with the legislative situation and ensure we allow the credit unions to become full community banks.
I welcome the Minister of State, Deputy Fleming, for statements on the credit union sector and the importance of community banking. We have all spoken about levels of trust. We see that in all of our towns and villages. As Senator Murphy said, there are significant challenges to access banking services in our smaller towns when our traditional banks are closing down. It is incredible. People have to travel further to access banking services.
I acknowledge our volunteers, particularly in my home town of Ballinasloe where the credit union started back in the 1960s. Volunteers with amazing expertise, perhaps from financial backgrounds, came together to provide a credit union for families in need. They recognised that there was a lot of poverty in our area. The same applied for every credit union that came together. Credit unions are a phenomenal example of communities coming together to support each other and families in need. So many families use credit unions for loans and savings.
The Minister of State spoke about recognising the role of credit unions, collaboration aspects, approved housing bodies and how every credit union can now invest in that, as well as agri-lending. He also mentioned supporting governance, member services and transparency of regulatory engagement. I note that he has had numerous engagements in the past while. It is testament to the programme for Government that we have a ministerial position with responsibility for the credit union sector. It is also important that we ensure that trust and reputation are maintained, and that our customers in the credit unions have access to full banking services. We need to support boards of management and credit union staff across the country. The Registry of Credit Unions at the Central Bank has issued a number of risk assessments recently.
If the Minister of State has time, I would be grateful if he would respond to a couple of questions. We have seen in the health sector that cybersecurity is a huge issue and the same is true for banking. Is there a way for us to support credit unions that are attempting to collaborate and also wish to have independence and autonomy? Could we have advisers in place at national level to support them with risk management during their annual general meetings, AGMs, and to provide full-time expertise to support them as they transition to providing full-time banking and community services? How are we supporting them in respect of cybersecurity to ensure they have adequate means to protect online banking from further attacks? This is a serious and shocking issue at a global level right now. There is going to be a higher level of cyberattacks across all areas, particularly banking.
On the statutory reserve, we have discussed in the House the cost to credit unions of lodging deposits with traditional banks. The Minister of State mentioned that there are other ways for them to invest such as through the affordable housing bodies and retrofitting. Could he expand on that? How do we support our credit unions to have the necessary guidance to go down that road? The savings caps are a serious issue. There have been a lot of household savings over the past two years in certain parts of our community.
In respect of education and apprenticeships, the Minister of State talked about retrofitting. We have courses now offering apprenticeships in banking and finance. It would be wonderful to see our community banks engaging with the apprenticeship programmes and supporting people to become qualified in cybersecurity, finance or whatever. Five new apprenticeship programmes were rolled out just today, one of which is in cybersecurity. Would it not be phenomenal if every credit union had access to someone who was being trained up in cybersecurity?
I thank all the Senators who have contributed to the debate. It is clear that everybody who has spoken has a deep personal knowledge of, interest in and commitment to the credit union movement. We are reflecting this in the programme for Government. For the first time ever, a Minister of State has been given dedicated responsibility for the credit union movement. I have mentioned the number of engagements I have had with the credit union movement. The Department was working and receiving submissions through all of the last year or more. Towards the end of last year, we combined all the submissions received from the League of Credit Unions, the Credit Union Managers Association, the Credit Union Development Association, and the credit union advisory committee, CUAC, which is an advisory committee to the Minister. We tried to get a consensus. We told them all we would come back to them one last time with the document we had prepared. We issued that to each of those organisations in the last couple of days. I have a date set in my diary for collective meeting in the next couple of weeks to see if we can agree the report. If it is agreed, it can go straight on to Cabinet for approval for legislation. I expect we will be there. I do not think there are any major surprises in what went out to the organisations in the past week.
The issue of lending to approved housing bodies has been mentioned by a number of Senators. Three funds have been established in the credit union movement, one through the league and another by a group of credit unions coming together. They established a fund and got Central Bank approval whereby any credit union in Ireland can invest in the fund. Every credit union in Ireland can now invest in the funds that lend to approved housing bodies. That has only happened in the past couple of months. They have three different funds that they can enter. It is open to all credit unions to do that.
On the issue of lending to local authorities, that is possibly the next step. Local authorities will be looking at the interest rates they can get from other State institutions when they are borrowing. That is an issue of commercial activity. Everybody mentioned the issue of retrofit loans which can have a key role here. Most of what the credit unions do is unsecured lending. They are the main provider of unsecured lending. Their mortgage lending is secured lending but 93% of every credit union loan is unsecured, based on the name or goodwill of the person they are dealing with because they know the people. The retrofit loans can come into that area. That is a separate issue.
The trusted brands were mentioned by many Senators and the gap in the mortgage market, which I will come back to, and the issue in respect of the forthcoming legislation. I am pleased that digital currencies and cybersecurity were mentioned. In my role dealing with international financial services I recently met the Department of Further and Higher Education, Research, Innovation and Science and IBEC, which are running apprenticeships in the area of financial services right up to FETAC level 9. They are being launched this year and are well under way. I would like to see many more people going into that area.
Many issues were raised in respect of the limits of the lending which I want to address. While the regulatory reserve stands at 10%, the credit union movement has 16% in reserve across the movement based on recent figures. They are saying there is a limit of 10% but they are voluntarily going 60% over the limit the Central Bank provides. They actually have reserves of 16%. An awful lot of what they have held in reserve need not be held in reserve. They are a long way over the 10% the Central Bank requires. It is important to say that. They are talking about the 10% but in fact they hold 16% or 17%. That does need to be held and the Central Bank has not asked for it to be held. The credit unions can release billions from what they are holding voluntarily in reserve without ever having to go to the Central Bank. It is very important that we should say that.
We all know how strong the credit union movement is and we are here to help it. The biggest issue I see is that it has assets of about €20 billion and loans issued of just over €5 billion. It is only lending 26% of its assets. There is no limit on that. There was a time the figure was over 50%. The Central Bank has not changed that. The credit unions are just not lending enough. They have all this money that they are not lending and they are having to invest in banks at negative interest rates, so they are not making money. Lending money at 6% or 7%, which is the average interest rate in a credit union loan, is far better than keeping it somewhere and getting negative interest. They can do that.
Where the issue of regulatory reserves comes in is in respect of mortgage lending. There are limits imposed by the Central Bank because it is a relatively new area and it wants the credit unions to acquire competence in that area as they go along. There are regulatory reserves.
They have combined them so that small credit unions can lend up to 7.5% without going back to the Central Bank. It is very important that I give Members these figures. The current limit that the Central Bank has set means they can lend up to €1.4 billion today, but they are actually only lending €260 million today. Without even talking to the Central Bank, the credit union movement today can lend out more than an extra €1 billion without going near the bank. The bigger credit unions that want to go above that €1.1 billion can apply to the Central Bank and they will be allowed to lend up to €2.24 billion, if they make the application. A handful have done this. The larger credit unions that have applied for a higher percentage of their loan book to be in mortgages have been approved. There is scope for the credit union movement today to lend out an additional €1 billion without talking to anybody. There is a limit in the regulations, but they are nowhere near the limit. Those credit unions that want go above the current minimum limit can get sanction, and some of them have done this. They also can lend up to that figure. This is what I want to see them doing.
Some of the credit unions have come together and it was mentioned by a Senator that this is helping them to collaborate. This is what I want them to do. The strength of the movement is that they are everywhere, but it is also their weakness because they are small and they cannot individually do this. My proposal for legislation will assist their collaborations. Some of the credit unions have not, or will never have, the expertise to be mortgage experts looking into the future risk for a 25- or 30-year mortgage. They need financial expertise that the organisation does not have. There is a shared services company, the Credit Union Service Organisation for Payments, CUSOP, which is a financial organisation that provides the knowledge to operate current accounts. No credit union makes up its own current account and its own card; this is done through CUSOP. That is to help them to collaborate whereby five or six credit unions come together with a brand name for a new current account. In the legislation I am looking to give those organisations statutory recognition in order that it is not just an informal arrangement. This will put them in a stronger position. When members go into their credit union to get a loan, while the expertise for a 25-year mortgage might not be in that particular credit union, the credit union service organisation will be called in to do all of the background work for them and approve a loan or otherwise. Then the credit union will give it out. They need help to do that back-office work. This is what we want to provide in those areas also.
The savings caps have been an issue. Credit unions did not want to take in extra deposits because if they were to invest money in some of the banks with a negative interest rate it would cost them. This was a feature for the past couple of years but it may not be a feature this year, next year or into the future. It was a problem at a particular time. Different credit unions managed this differently. Some credit unions had a limit on new accounts and some credit unions forced some people to take money out of their existing account. The way it happened in individual credit unions was a matter for the local credit union. Some handled it very subtly and some of them were not as subtle in how they went about it. It probably was a feature of how individual credit unions did all that.
The role of volunteers was also mentioned. It would be remiss of me not to talk about the closures of Ulster Bank, KBC and Bank of Ireland branches and the role of the ATMs around the country as they affect credit unions. This will be done through one of these service organisations. The local credit union will not go off to buy an ATM. It will be done through one of the ATM providers, and some of them have stepped up to the mark in towns when bank branches closed and there was no ATM left on the street. That is happening in individual cases at local level.
To conclude, I thank all Members for their contributions. We are almost at the final stages of getting agreement from the credit union movement on the proposals that I hope to bring to Cabinet in the weeks ahead. The date has been set for that meeting and I hope to have legislation published and enacted this calendar year.
I thank the Minister of State, Deputy Fleming for his comprehensive reply. I also thank colleagues for their participation in the debate.
Cuireadh an Seanad ar fionraí ar
3.45 p.m agus cuireadh tús leis arís ar 4.30 p.m.
Sitting suspended at 3.45 p.m. and resumed at 4.30 p.m.