Update on the Financial Condition of the Credit Union Sector

• Central Bank releases second report on the financial condition of the credit union sector
• Growth in new lending and a decrease in the level of loan arrears are both notable but pressure remains on credit union business model
• Low Loan to Asset Ratio and the low interest rate environment continue to present challenges for credit unions

The Central Bank of Ireland today publishes its second report on the financial condition of credit unions in Ireland. This is part of the Central Bank’s commitment to communicate openly and regularly on matters relating to the credit union sector.

The report notes that total assets in the sector have increased by €3.1bn between 2012 and 2017 and currently stand at €16.8bn. During the same period, members’ savings have increased by €2.3bn. Following the decline in the loan to asset ratio from 37 per cent in 2012 to 27 per cent in 2015, there is now evidence of stabilisation, with the ratio remaining at 27 per cent since 2015. Loan to asset ratio is a key measure of credit union financial health. 

Lending in excess of 5 years increased by €216m from €452m in 2015 to €668m in 2017. Lending in excess of 10 years increased by €59m from €87m to €146m in the same period. The Central Bank today also today issues Guidance on Long Term Lending.

Average loan arrears reported across the sector continue to show a decreasing trend – reducing from 19.6 per cent in 2012 to 7.4 per cent in 2017 (expressed relative to gross loan balances). Liquidity remains strong in the sector with an average liquidity ratio in 2017 of 36 per cent.

Income has reduced across the sector over the period 2012 to 2017. This has been driven in particular by the decrease in loan interest income related to the decline in credit union lending since 2012.

In addition, investment income has reduced due to the low interest rate environment, leading to the overall return on assets ratio for the sector falling from 2.3 per cent in 2012 to 1.0 per cent in 2017. Notwithstanding these trends, a reduction in bad debt write offs as well as loan provision write backs have facilitated credit unions’ ability to maintain surpluses. However, given the non-recurring nature of these factors, it is recognised that they will not contribute to the future generation of surpluses across the sector.

Addressing the report on the financial conditions of credit unions, Registrar of Credit Unions Patrick Casey said:

“This report reinforces the challenges which continue to face the business models of credit unions in Ireland. While some modest improvements are noted, at a sectoral level work remains to be done to ensure a sustainable credit union sector into the future.

In order to find the right product and service mix for credit union members and to compete sustainably with others, factoring in their own capabilities, credit unions need to exploit their uniqueness, the cherished nature of their brand, their local advantages and footprint and their high personal interface with their members.”