Central Bank publishes Financial Conditions of Credit Unions Report

The Central Bank of Ireland today published its tenth edition of the Financial Conditions of Credit Unions Report, which provides an update on the financial performance and position of the sector for the financial year ended 30 September 2023.

The publication provides sectoral data and commentary, and aims to inform credit union boards in carrying out their own strategic analysis and decision-making.

The latest report shows that total assets continued to increase across the sector with some positive financial trends in 2023 on total loans issued and loans outstanding. However, challenges remain, including the continued low loans to assets ratio and an emerging increase in the level of reported early stage loan arrears.

The report identifies key trends, including:

Lending

• Loans issued during the year totalled €3.0 billion, bringing total loans outstanding to €6.3 billion at 30 September 2023 (up from €5.6 billion in 2022) representing an increase of 12 per cent year on year.
• House loans increased from €317 million in 2022 to €484 million in 2023. This is an increase of 53 per cent, with the average loan size increasing from around €86k to €105k.
• Business loans increased from €146 million in 2022 to €162 million in 2023, an increase of 11 per cent, with the average loan size increasing from around €20k to €22k.
• Notwithstanding these increases in house and business loans, there remains significant capacity within the current lending concentration limits for further lending in these areas. This further capacity amounts to €900 million, increasing to €2.1 billion if all eligible credit unions availed of increased concentration limits available.
• While the sectoral average percentage of total loans in arrears has continued to trend downwards post pandemic, the total amount of loans in arrears, including early stage arrears, increased over 2023.

• Savings – members’ savings increased from €17.0 billion at 30 September 2022 to €17.5 billion at 30 September 2023.

• Reserves – average sector total realised reserves as a percentage of total assets have again increased marginally to 16.2 per cent (required regulatory minimum is 10 per cent of assets).

• Investments – grew to €13.8 billion, up from €13.1 billion in 2022, with the average level of return increasing to 1.2 per cent in 2023. The overall maturity profile of investments shortened in 2023. 

• Return on assets (ROA) – the average ROA increased from 0.3 per cent to 0.7 per cent for the year ending 30 September 2023. Sustained viability challenges are being experienced by some credit unions, including a small number of credit unions that reported a negative ROA for 2023.

Commenting on the report, Registrar of Credit Unions Elaine Byrne said: “Given the trends and the economic outlook, this is a time for credit unions to pay particular attention to proactive asset and liability management, arising from the changing maturity profile of their balance sheets, as credit unions seek to diversify their lending. This includes maintaining sufficient liquid assets to meet business requirements and withstand liquidity stress scenarios.”

The Registrar also noted that the Credit Union Amendment Act 2023, enacted last December, is a significant development and will provide new business opportunities for credit unions.

The Registrar concluded: “In updating strategic plans to reflect new business opportunities, credit unions should consider how to achieve scale efficiencies, cost management within their financial capacities and greater product standardisation in order to deliver a range of products and services to their members in a prudent and sustainable manner.”