Credit unions ‘should lend more mortgages’, minister says
Credit unions should fill the void left by the departures of Ulster Bank and KBC from the Irish market and start lending more mortgages, said the minister responsible for the sector.
Deputy Minister of Finance Sean Fleming said credit unions do not lend enough to their members and there is a “downside” to industry fragmentation that prevents many smaller credit unions from entering the mortgage market. “They’re not making enough loans, that’s the big problem,” Mr Fleming told the Sunday Independent.
Figures compiled by the Department of Finance for an upcoming sector policy review show credit unions have €20bn at their disposaln savings but only 5.2 billion eurosn loans through a network of 213 branches and more than 400 branches.
At the end of last year, only two credit unions were approved by the Central Bank for a new lending limit of 15% of assets if they total 100 million euros or more.
The policy review will likely prompt the sector to move its 26% loan-to-asset ratio to a more sustainable level via more mortgages and SME lending. “The bottom line is I want them to increase their lending, that’s the best future for credit unions, they have excess funds that they’re not using,” Fleming said. noted.
“That’s the biggest problem. The more they lend, the more profitable they are, and then they can pay a dividend to their members, but they’re not lending enough money right now, and it’s not just that Historically, the amount of loans has decreased, in proportion to their assets.
Mr Fleming said he met with credit union representative bodies immediately after Ulster Bank announced its decision to withdraw from Ireland last year and the closure of dozens of Bank of Ireland branches. “I asked them to strengthen their footprint in certain provincial towns in particular. In many cities they are the only financial institution still standing,” he said.
He added that the strength of the sector was its brand image and the “indisputable” trust that people place in their credit union. However, there was a “difficulty” in that there were over 200 individual credit unions, each having to sell in its own market.
“So to some extent their fragmentation has been their strength. But there is a downside to their fragmentation in that collectively they cannot all work together because they are all individual credit unions.
“There have been a lot of mergers. A few years ago there were over 400 credit unions and they’ve fallen to just over 200 now – and it’s all voluntary.”
Mr Fleming said that while smaller credit unions would not have the financial expertise to lend, “if three or four of them can build a larger credit union, they can have the scale to do mortgages, so there are a lot of advantages to doing things like that”.