“Future focus needed on sustainable business lines and resilience” – Patrick Casey, Registrar of Credit Unions

23 April 2022 Press Release

Central Bank of Ireland

  • Without business model transition, credit unions face real financial viability risk
  • Sector energies need to be refocused on credit union commercial challenges and building sustainable business lines
  • The existing regulatory framework already accommodates prudent business model transition, including across all key lending categories

Addressing the Irish League of Credit Unions (ILCU) Annual Conference in Belfast today, the Registrar of Credit Unions, Patrick Casey, outlined the financial viability challenges facing the sector in the absence of credit union business model transition. He emphasised that given the pace and scale of change in financial services, now is the time for future focus from the sector to clarify its strategic direction. This must be centred on the provision of products and services that members need while ensuring the protection of their funds.

Mr Casey noted that the existing regulatory framework accommodates prudent business model transition by credit unions - including up to €2.5BN capacity available for house and business lending. At 30 September 2021, the total of house loans outstanding by credit unions was €260M - only 10% of available capacity. He added half of all credit unions have decided not to engage in house lending, with sector appetite for higher lending limits still muted.

Mr Casey said that “the commercial reality is that it is simply not enough just to have the surplus funds available for house loans. Credit unions must have more advanced competence and capability to compete with others for market share. You still need to build a compelling mortgage proposition which attracts borrowers – one that delivers a sustainable return for the credit union over the economic cycle. This is not a regulatory challenge, but a commercial one.”

More broadly, Mr Casey noted that the Central Bank has been highlighting pension disclosure issues connected with ILCU’s pension deficit for some time now. While this does not raise broader sector stability concerns, there will be financial impacts for all affected credit unions - ‘underlining the importance of minimum capital requirements to protect members against unforeseen losses’ he said.

Referencing the regulatory role in supporting prudent business model transition, he noted the Central Bank’s focus on direct engagement with credit unions – based on the effective implementation of the existing regulatory framework. This includes assessing credit union applications for increased house and business lending, current accounts and other services.

Mr Casey concluded: “We want to see a strong and sustainable sector serving local communities across Ireland. Credit union commercial challenges are well known – and they require commercial answers in order to reverse the growing gap between members’ savings and loans. Without business model transition by credit unions, many will face real financial viability risk.

“Delivering sustainability requires effective provision of services to members - which they need, which they choose to obtain from you over others, and which they are willing to pay you for on a basis that generates income through the cycle.”