Credit unions will be able to offer more long-term loans following a review of lending practices by a Government-appointed body.
Minister for Finance Brian Cowen said yesterday that from the beginning of June credit unions would be able to lend as much as 40 per cent of their total loan portfolio for more than five years and 15 per cent for more than 10 years.
Such institutions are currently restricted to lending only 20 per cent of their loan book for more than five years and 10 per cent for more than 10 years, a situation which the movement has complained is hampering growth.
The changes, which will be subject to each credit union applying for approval from the Registrar of Credit Unions, follow the publication of a report on the review of section 35 of the Credit Union Act, which restricted lending.
Mr Cowen said that he would be bringing forward legislation to enable credit unions to act under the new regime.
Liam O'Dwyer, chief executive of the Irish League of Credit Unions, welcomed the changes, saying that they would allow credit unions to better respond to their members' financial planning needs.
Citing the historically low level of interest rates and the desire of individuals to borrow larger sums and repay over longer periods of time, the authors of the report said that the existing regulations could be restricting credit unions from competing in this area of the market and, as a result, hampering the movement's growth. They also said that the existing legislation had adverse implications by relating the percentage limits on longer-term lending to the size of a credit union's overall loan portfolio rather than to its total assets.
"While there are always risks associated with increased long-term lending limits, it is clear that there could also be risks in taking no action and allowing existing trends to continue," the report stated.
Some credit unions have also expressed interest in entering the mortgage market, an area where at the moment they can only operate in conjunction with other financial institutions.
