Number of credit unions falls by nearly 50% since crash

The number of credit unions operating in the Republic has fallen by nearly 50 per cent since the crash, according to an external review of the Central Bank of Ireland's regulation of the sector, which highlighted the need for greater financial transparency.

The peer review, compiled by the International Credit Union Regulators’ Network (ICURN), noted that the number of registered unions now stands at 248 compared to 428 at the end of 2006 on foot of a massive consolidation process, which has seen dozens of smaller unions merged with larger ones while some others have gone out of business.

The report was broadly positive about the Central Bank’s oversight of credit unions here but highlighted several areas where improvements could be made.

It said the Central Bank’s semi-annual financial conditions reports could be beefed up “with peer group data on net financial margins, yields on savings, fee income, investments and loans, breakdowns of operating expenses”.

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The review also said the Central Bank needed to do more to support the risk management culture within credit unions.

“Financial institutions, of all stripes, can be lulled into believing they are effectively managing risk and complying with regulatory requirements because they have a standard set of policies (credit, liquidity investment, IT) in place,” it said.

However, when credit unions are not actively monitoring, acting and updating these policies this can lead to a “tick-box” compliance by financial institutions instead of active risk management, the review said.

The report also highlighted a “ few isolated cases” where the Registry of Credit Unions (RCU), the division within the Central Bank in charge of the sector, could improve its correspondence with credit unions regarding its line supervisors changing, and regarding the status of an application for new products and services.

The review noted that non-performing loans have decreased from 16 per cent to 5 per cent . Many credit unions are, however, still struggling because of the low return on investments.

The ICURN said that the return on assets is on “a steady decreasing trend” from 1.6 per cent in 2015 to 0.8 per cent in March 2019.

Patrick Casey, the Registrar of Credit Unions, said the review provided "external validation of the effectiveness and proportionality of our regulatory and supervisory approach for credit unions".

The Central Bank recently relaxed lending restrictions on credit unions to allow them grow their mortgage and commercial loan books. Previously there were limits on the amount that credit unions could lend out over five and 10 years. The Central Bank has, however, removed these maturity limits to give unions greater flexibility to undertake increased levels of longer-term lending.