The Central Bank said on Wednesday it plans to treble credit unions’ capacity for mortgages and business loans to €8.6 billion, following a review of lending across the sector.
The review of follows on from the enactment late last year of the Credit Union (Amendment) Act 2022, aimed at developing the capacity of credit unions to lend.
It also comes almost five years after regulators undertook an initial easing, in early 2020, of previously very restrictive long-term lending limits on credit unions.
“The lending framework for credit unions has provided, and will continue to provide, important guardrails for the sector and for the protection of members’ funds,” said Sharon Donnery, deputy central bank governor. “However, we are committed to ensuring the regulatory framework is responsive and appropriate in a financial system that is changing at pace. The proposed changes build upon the existing lending framework and follow our own comprehensive evidence-based review.”
The proposal, which have now gone out to public consultation, with submission being invited by February 11th, will provide further opportunity for the sector to develop and collaborate in a “meaningful and sustainable manner”, Ms Donnery said.
“Our expectation is that the proposed changes to the lending framework, if implemented, would enable those credit unions that wish to undertake increased house and business lending activity in order to diversify loan books, improve loan-to-asset ratios and better deliver for their members,” she said. “We expect that credit unions will continue to lend prudently as they further build skills, capacity and expertise in this type of lending.”
The Central Bank plans to allow credit unions, regardless of size, to lend up to the equivalent of 30 per cent of their total assets by way of home mortgages. It proposes that business lending can equate to as much as 10 per cent of a credit union’s assets.
The current rules allow large credit unions in some cases to issue mortgages and home loans of as much as 15 per cent of total assets. Still, for the majority of players in the sector, such long-term loans cannot exceed 7.5 per cent of total assets.
Still, mortgage lending has been growing strongly recently, even within the confines of the current rules. New mortgage lending by credit unions jumped 51 per cent in the year to September, according to the Irish League of Credit Unions (ILCU), which represents 90 per cent of the total active credit unions in the Republic.
New home loans rose to €560 million for the period, with mortgages now making up 10 per cent of the total loan book of the sector, it said. The value of total new loans rose 7.2 per cent on the year to €2.78 billion, leaving credit unions with a total portfolio of €5.89 billion of loans.
Total loans across the sector equated to 32 per cent of assets, at €18.3 billion, as of the end of September, according to the ILCU.
The ratio marks an improvement from levels of about 27 per cent that the Central Bank had reported for the entire sector four years ago. It had stood at 49 per cent in 2007. The optimal loan-to-assets ratio is widely viewed to be about 50 per cent.
Kevin Johnson, chief executive of the Credit Union Development Association (Cuda), welcomed the planned lending limit changes.
“The Credit Union (Amendment) Act 2023 was designed to give credit unions greater flexibility, enabling them to engage in loan participation and syndication, which allows lending risks to be shared among credit unions,” he said. “The combination of the legislation and these proposed regulatory changes mark a major step forward for the sector, empowering credit unions to enhance their offerings in both the mortgage and business lending markets.”
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