A large number of credit unions are ignoring the fact that their clients are not repaying their loans or are unaware of the problem, according to a confidential report for the Irish League of Credit Unions.
Submitted to the league in March by its own rationalisation committee, the report warns that the delinquency problem is increasing and that it will probably lead to credit union failures in the coming years.
It said the key delinquency ratio in almost three-quarters of 448 credit unions analysed in 2003 was above the league's guideline target of 5 per cent, and added some credit unions have "very significant adverse ratios".
About three million people are members of credit unions and their savings currently amount to some €12.6 billion. Loans in issue amount to some €7.1 billion.
While the report described as "worrying" the fact that credit unions are not addressing the delinquency issue, the league insisted yesterday that clients had no reason to be concerned about their savings.
"They should not be worried about their money at all," said the league's executive manager Pat Fay, who is a member of the rationalisation committee.
"No person in any credit union affiliated to the Irish League of Credit Unions has ever lost any of their savings in their credit union."
However, the report said the current degree of delinquency in some individual credit unions posed a risk to the overall movement in terms of its reputation and its potential impact on the insurance scheme to protect members' savings. It also warned of "potential regulatory consequences".
The rationalisation committee was formed by the league in 2004 to examine how the movement should deal with increased competition and a falling market share for loans. Written by a UCC academic Noreen Byrne, the report says a number of credit unions in the league are encountering "persistent difficulty" in their business.
Last month, Monaghan credit union was forced to deny it was insolvent after members turned up to withdraw their funds because they feared it was on the verge of going bust. This followed confirmation from the union that it had bad debts of more than €11 million.
Mr Fay said yesterday that the report was a "timely warning" to the league but he insisted that the situation in Monaghan was unique. "Monaghan is quite an exceptional situation and it would not be in any manner or means indicative of the norm in credit unions."
He said that only 0.5 per cent of league member loans were written off every year and said this indicated the loan book was of good quality.
"It would not be the policy of the league that there would be any massaging of the figures of any kind and loans that are irrecoverable should be written off," he said.
Mr Fay said the league was in the process of putting in place structures to implement the report's 18 recommendations. The main recommendation on delinquency said "greater attention should be given to the whole area of loan approvals, credit underwriting, credit control, treatment of loan delinquency and bad debt write-off".
The report did not identify the credit unions whose future is in question nor did it say how many of them there were.
"Market share is decreasing, some credit unions have potential solvency and other problems leading to the possibility of credit union failures, the product range and technology base is limited and there is possibly an increasing democratic deficit in the movement," the report said.
"With decreasing trends in loan growth, increasing delinquency and increasing direct competition, it is not unreasonable to think that there will probably be Irish credit union failures in the coming years.
"It is the responsibility of all credit union boards of directors to ensure that this does not happen. The credit union is run for the benefit of the members, and not for the benefit, convenience or nostalgia of directors or staff."
