Consolidated credit unions 'could be major player' in Irish financial sector

MAJOR CONSOLIDATION within the credit union sector will be necessary to ensure its survival but it has the potential to become a major player in the Irish financial sector, filling a gap left by the exit of EBS and Irish Nationwide, a senior Central Bank official has predicted.

Jonathan McMahon, director of the credit institutions at the Central Bank, said that recent decisions aimed at rationalising the Irish banking system may serve as a useful model for the challenges facing the country’s 409 credit unions.

Mr McMahon said credit unions had suffered in the same macroeconomic conditions that affected the banks but that great work had been done by the Irish League of Credit Unions through its savings protection scheme.

“While the ILCU support has been important to the maintenance of the sector’s stability, the Central Bank considers that somewhat more definitive actions will also be required if the sector is to be placed on a stable long-term footing,” he said.

Mr McMahon told a conference organised by the Financial Services Innovation Centre at University College Cork that the credit union movement had total assets of over €14.3 billion but that these were typically composed of unsecured personal loans.

As a consequence, the credit union balance sheet was inherently unstable and while it was a very fragile business model, it was one that worked due to the strength of the local connections as the credit union knows its borrowers.

Mr McMahon pointed out that 52.32 per cent of credit unions – some 214 – had assets of less than €20 million while a further 20.78 per cent – some 85 – had assets between €20 million and €40 million, highlighting the large number of small credit unions in existence.

“In a world where there are no large mutuals, EBS is gone, INBS is gone, there is now an opportunity for the credit union sector through a process of consolidation to step into the gap which has been left by the disappearance of those two institutions,” he said.

Mr McMahon predicted that reform of the Irish banking sector will lead to smaller Irish banks, with fewer business lines which will operate predominantly in the Republic of Ireland, with residential mortgage and loans to small and medium-sized enterprises dominating lending.