Total loans outstanding to credit unions rose 12 per cent to €6.3 billion in the 12 months to the end of September, according to a report from the Central Bank.
The regulator published its 10th edition of the Financial Conditions of Credit Unions Report on Monday, which provides an update on the financial performance and position of the sector.
It shows that total assets continued to increase across the sector with some positive financial trends in 2023 on total loans issued and loans outstanding.
However, it warned that challenges remain, including the continued low loans to assets ratio and an emerging increase in the level of reported early-stage loan arrears.
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House loans increased from €317 million in 2022 to €484 million in 2023, which represented an increase of 53 per cent, with the average loan size increasing from about €86,000 to €105,000.
Business loans increased from €146 million to €162 million, which was a hike of 11 per cent, with the average loan size rising from about €20,000 to €22,000.
“Notwithstanding these increases in house and business loans, there remains significant capacity within the current lending concentration limits for further lending in these areas,” the report said.
“This further capacity amounts to €900 million, increasing to €2.1 billion if all eligible credit unions availed of increased concentration limits available.”
While the sectoral average percentage of total loans in arrears has continued to trend downwards post-pandemic, the total amount of loans in arrears, including early-stage arrears, increased over the year.
Members’ savings increased from €17 billion to €17.5 billion, while average sector total realised reserves as a percentage of total assets again increased marginally to 16.2 per cent.
Investments grew to €13.8 billion, up from €13.1 billion in 2022, with the average level of return increasing to 1.2 per cent in 2023. The overall maturity profile of investments shortened in 2023.
The average return on assets increased from 0.3 per cent to 0.7 per cent. “Sustained viability challenges are being experienced by some credit unions, including a small number of credit unions that reported a negative return on assets for 2023,” the report said.
Registrar of credit unions Elaine Byrne said it was a time for credit unions to pay “particular attention” to proactive asset and liability management, arising from the changing maturity profile of their balance sheets, as credit unions seek to diversify their lending.
“This includes maintaining sufficient liquid assets to meet business requirements and withstand liquidity stress scenarios,” she added.
Irish League of Credit Unions chief executive David Malone said credit union representative bodies had made a “thorough and detailed” submission to the Central Bank to call for a number of targeted changes to the credit union lending framework.
“While the report notes that there is capacity within the current lending concentration limits for further lending, it must be noted that lending limits apply to individual credit unions and not to the sector as a whole,” he added.
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Kevin Johnson, chief executive of the Credit Union Development Association [Cuda], said he expected the scale of credit union lending to significantly increase in the coming months and years.
“From September, for the first time, credit unions will be able to offer a service or product such as a home loan to a member of another credit union under a formal arrangement with that other credit union,” he said.
“For householders and aspiring homeowners, this means there will be greater access to fairer mortgages as credit unions will be able to refer mortgage applications to other credit unions should they not be in a position to provide a mortgage themselves.
“This effectively means that every credit union in the country will be able to offer mortgages. As a result of these changes, Cuda contends that total new credit union mortgage lending could reach €1 billion per annum by 2027.”
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