Dáil Éireann Debate, Tuesday - 27 May 2014
2. Deputy Peadar Tóibín asked the Minister for Finance his views on whether the cumulative effect of lending restrictions on credit unions and the lack of clarity in the use of discretion by credit unions in lending is having a negative impact on the credit union movement’s ability to advance loans to its members and thereby contribute to economic recovery. [23121/14]
Amharc ar fhreagraAs the Minister is aware, the credit union movement is important and unique. It is at the centre of the financial ecosystem in most communities across the island of Ireland. Credit unions have been through a very rough period, but, unlike the banks, they are still held in high regard and respect among their members and wider society and we must commend their professionalism and commitment in that regard. They can play a role in breathing new economic life into the State and encouraging regeneration. This question is about their ability to do this and the State allowing them to do so.
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 them. Acting as the independent regulator, the Registrar of Credit Unions at the Central Bank has applied lending restrictions to some credit unions. I have been informed that these restrictions are viewed as short-term in the majority of cases and imposed as a means of allowing a credit union to address identified concerns as quickly as possible. Where lending restrictions are imposed, they tend to take the form of a restriction on individual loan size or 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 the vast majority of credit unions can continue to make loans significantly greater than the average loan for the sector. The Registrar of Credit Unions has assured me that restrictions are reviewed on a regular basis.
Under the Credit Union and Co-operation with Overseas Regulators Act 2012, I introduced the right for credit unions to appeal regulatory decisions, including those related to lending restrictions, to the independent Irish Financial Services Appeals Tribunal.
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 five years and up to 10% for more than ten years. Based on the most recent information provided by credit unions for the Registrar of Credit Unions in the December 2013 quarterly prudential returns, average lending over five years as a percentage of gross loans was some 11%, while average lending over ten years as a percentage of gross loans was about 2%. These figures indicate that, in general, credit unions are well within the limits as set down in the 1997 Act.
Additional information not given on the floor of the House
I have been informed by the Registrar of Credit Unions that with regard to the impact of lending restrictions on the ability of credit unions to lend, it should be noted that data available to the registrar show that there is no material difference between the average loan-to-asset ratio of credit unions with and without restrictions. Also, where individual lending restrictions are imposed, the data show that the majority of credit unions are not lending up to the lending restriction amount, with the majority of loans granted being at lower loan levels.
The Registrar of Credit Unions has informed me that lending restrictions are, in most cases, intended to be short-term in nature and kept in place until the credit union has addressed the issues giving rise to the particular concerns advised to it and the registrar has evidence that the weaknesses in governance, systems and controls are properly remediated and solutions have been fully embedded by the credit union. The Registrar of Credit Unions has advised that a credit union that engages proactively in mitigating identified risks will find that the registrar is open to reviewing and, where appropriate, easing lending restrictions.
I am satisfied that the safety of members' savings and the security of the credit union sector as a whole are central to actions taken by the Registrar of Credit Unions.
Credit unions play a vital role in everyday life in urban and rural Ireland and those working within them have raised many concerns of which I am sure the Minister is aware. They have outlined these concerns to us and I have spoken to many other Deputies who have also heard them.
The movement worked with my party and others in shaping the Credit Union Act. Some of its concerns flow from the imperfections in that Act. Others are more general and could be resolved with political will, I believe.
Section 35 limitations are not working. There is a need for regulations and new rules and this is fully accepted by the movement.
A question, please.
Under section 35 the credit unions are being treated like the banks in terms of their being disallowed necessary discretion. Will the Minister allow for a common-sense approach to be taken with regard to the discretion credit unions should use in relation to the extension and restructuring of loans and offering further credit to those who can afford to pay?
We have all heard these objections. However, the facts do not bear them out. On the Deputy's point that section 35 is not working, under section 35, 30% of a loan book can be outstanding for more than five years. The credit unions have, on average, only 11% outstanding. Also, 10% of a loan book can be outstanding for more than ten years, but the credit unions have only 2% outstanding. This suggests to me that the credit unions are operating well within the headroom provided by section 35.
With regard to the impact of lending restrictions on the ability of credit unions to lend, I have also been informed by the Registrar of the Credit Unions that the data available indicates that there is no material difference in the average loan-to-asset ratios of credit unions with and credit unions without restrictions. Also, where individual lending restrictions are imposed, this data shows that the majority of credit unions are not lending up to the lending restriction amount, with the majority of loans granted being lower than the loan levels. According to the registrar, while it might impinge on individual cases, it certainly does not impose restrictions on the general work of the credit unions.
The information we are receiving indicates that there is a lack of flexibility with regard to restructuring and the provision of additional credit. The figures provided by the Minister paint a clear picture but one in respect of the credit union movement as a whole rather than individual credit unions.
The Commission of Credit Unions was of the view that a three-tier approach would work best, yet the Central Bank has proposed a two-tier approach. Why has the commission's view in this regard been discarded? There is suspicion that some credit unions will be forced to merge to ease the regulatory burden. The impact of the prudent lending circular is also raising concerns in that credit unions are being forced to interpret it in a conservative fashion, thus limiting their lending further. This, I believe, does not empower the credit unions to become mechanisms of lending into the economy. Will the Minister outline what he proposes to do to address these concerns?
The Central Bank is the regulator, not the Department of Finance. The bank regulates principally to protect the interests of customers and to protect the savings of credit union members. It does not want credit unions to get into financial difficulty. There is a myth that all the banks were bad and all the credit unions were good, but this is not true. There have been credit unions that got into difficulty. The example of Newbridge Credit Union will be fresh in people's minds. Despite our having been told on several occasions how well it was trading and how prudent its lending policies were, it cost a great deal of taxpayers' money to get it out of difficulty. Following examination of the credit union, that did not appear to be the case. There are a small number of credit unions - thankfully, it is a small number - that are in difficulty. ReBo is communicating with the credit unions concerned. While there will, hopefully, be some amalgamations, these are not being driven by considerations other than the solvency and effectiveness of the credit unions. It is proposed to restructure the credit unions so that they can continue to play a vital role in our communities.
