Guidance issued to credit unions on Long Term Lending

• Central Bank supportive of such lending where it is prudently undertaken, well-managed and in line with credit union strategy and capabilities
• Credit Union management and Boards expected to adopt a structured risk-based approach to Long Term Lending
• Revised application process also launched for credit unions that may seek to engage in Long Term Lending beyond existing maturity limits

The Central Bank of Ireland today issued guidance to the credit union sector in relation to Long Term Lending. 

The guidance highlights the main risks credit union boards and management should consider in understanding and managing Long Term Lending, and in particular mortgages, given that this type of lending can be more complex than traditional credit union unsecured lending. 

The  expectation is that  longer term loan book development is undertaken by credit unions that can demonstrate the capability and capacity to deal with elevated levels of risk and  operate in compliance with applicable legislation and regulation, both under domestic and, in the case of mortgages, European Law.

The guidance advocates a structured, risk-based approach by credit unions already involved in, or considering becoming active in Long Term Lending. In addition, it emphasises that Longer Term Lending requires rigorous risk-focused strategic and business planning by credit union boards and management.

The Central Bank is also launching a revised application process for those credit unions that can demonstrate they have appropriate governance, risk and compliance control frameworks and who wish to lend a higher percentage of their loan book over longer time periods.

The Central Bank today also issued a separate statistical publication "Financial Conditions of Credit Unions 2012-2017" which shows lending in excess of 5 years increased from €452m (2015) to €668m (2017). Lending in excess of 10 years increased from €87m to €146m in the same period. Lending in excess of 10 years is currently concentrated, with 15 credit unions representing 55% of such lending.

Registrar of Credit Unions Patrick Casey said:

“The Central Bank is supportive of credit unions prudently engaging in an increased level of long term lending. However, this lending must form part of a balanced loan portfolio and a prudently managed balance sheet, and must also be consistent with a credit union’s strategy and capabilities.

The scale and investment requirements of certain business lines may not be economically realistic for many credit unions.

We expect that credit union boards and management will find the guidance in this document useful as they seek to develop responsive business strategies to address the current challenges facing the sector.

Notes:

• A new application process for credit unions who wish to engage Longer Term Lending in excess of the limits prescribed under regulation, was also launched today. This is a structured risk-based application process involving submission of a detailed business plan.