Central Bank provides update on the financial condition of the Credit Union sector in latest report

30 March 2023 Press Release

Central Bank of Ireland

The Central Bank of Ireland today (30 March) published its ninth edition of the Financial Conditions of Credit Unions Report.

The report provides an update on the financial performance and position of credit unions for the financial year ended 30 September 2022. It also provides sectoral data and commentary, and aims to inform credit union boards in carrying out their own strategic analysis and decision-making.

The report notes that the macro-financial environment, including tightening monetary policy, has the potential to impact the financial position of credit unions, particularly in the areas of investments, interest income, as well as loan quality.

Positive trends have emerged, with total loans outstanding returning to pre-pandemic levels and continuation in the trend of increased loan duration. However, the report finds that sustainability challenges remain for credit unions.

It concludes that under the regulatory framework, credit unions have scope to provide a range of products and services to members, and that strategic business decisions should be informed by their capabilities, risk appetite and financial resources.

The report identifies key trends, including:

  • Lending – total loans outstanding increased to pre COVID-19 levels.  However, despite this increase, the overall loan to asset ratio at 28.4% remains close to historically low levels.  Arrears have fallen to a 7-year low of 3.0%, but credit unions should be cognisant of economic headwinds. Significant capacity remains at a sectoral level for additional house and business lending - this capacity amounts to €1.06bn, increasing to €2.1bn if all eligible credit unions availed of increased concentration limits available.
  • Savings – while the rapid pace of savings inflows observed during Covid-19 has reduced, savings continued to increase during 2022, totalling €17bn at 30 September 2022.
  • Reserves - average sector total realised reserves as a percentage of total assets increased marginally to 16.1% at 30 September 2022, with all credit unions reporting regulatory reserves above the required regulatory minimum of 10% of assets. 
  • Return on assets (ROA) – the viability challenges being experienced by a number of credit unions are evidenced through a declining ROA, with an average sector ROA for 2022 of 0.3 per cent compared to 0.6 per cent for 2021.

Commenting on the report, while addressing the Spring Conference of the Credit Union Managers Association in Galway today, Registrar of Credit Unions Elaine Byrne said: “While the financial trends observed over the 2022 financial year include some positive indicators, the low loan to asset ratios,  increases in costs, and falling return on assets, if  not addressed by credit unions will continue to impact on sustainability. The maintenance of strong reserves is key to underpinning member confidence, particularly in the challenging macro-financial environment and where sustainability challenges continue.

"Credit unions can offer a wide range of products and services to their members. Sectoral collaborative efforts to provide services are welcome, and forthcoming legislative changes should provide further opportunities for credit unions to expand their service offerings to members. 

"It is important that credit unions clearly identify their members’ financial services needs, recognising the financial and operational requirements to deliver an expanded range of services in a prudent and sustainable manner."