THE CREDIT union regulator last night expressed concern at the sharp increase in the arrears levels of many institutions in the sector. He also warned growing numbers of credit unions are showing signs of potential solvency problems.
James O’Brien, registrar of credit unions, told delegates at a regulatory forum in Kilkenny that an increasing number of credit unions are now classified as “high risk” and have been placed on his supervisory watchlist.
Falling income levels and downward pressure on dividends indicate the sector remains under “significant stress”, he said. In addition to the upward trajectory of arrears levels, he expressed concern about the potential exposure of some institutions to further investment losses on their portfolios. “All of these trends are pointing to the likelihood that more credit unions could be heading into financial difficulties.”
He pinpointed the poor governance practices that arose as a result of the lax legislative framework in place, coupled with a poor compliance culture, as being major contributors to the problems now evident in the sector.
He outlined a strategy designed to “protect the financial stability of the sector” in the event these trends continue. In the short-term, weak and non-viable credit unions must be quickly dealt with. An adequate legislative and regulatory framework must be developed to protect the financial stability of individual credit unions. In the longer-term, the sector will have to restructure, he said.
The Central Bank has been working towards the establishment of a statutory resolution regime. It is envisaged this will include a statutory fund to support credit unions in financial difficulty. The Irish League of Credit Unions has begun discussions with the bank on these issues.
Under the terms of the EU/IMF bailout, the Republic must submit legislation to the Oireachtas to provide a strengthened regulatory framework by the end of December 2011.
A spokeswoman for the Central Bank said a loan book review of all credit unions has been completed.
