Low interest rates and slow loan growth stand in the way of increased income for the Irish credit union sector, despite rising assets, says the country’s Central Bank.
The report also points to consolidation in the sector, resulting in fewer and larger credit unions. There are now 246 – down from 388 in 2014. Of these, 109 have less than €40m in assets and and 55 have at least €100m.
This is contributing to an average loan to asset ratio of 28% – a historic low for the sector, which is affecting income.
Total income for the sector was €293m in the six months to 31 March 2019, mostly from loan interest and investment income. Expenses across the industry were €218m.
In response to the problems, some credit unions have been restricting deposits or increasing lending, with the report indicating “an increase in credit risk appetite”.
“It remains a challenging commercial environment for credit unions in the context of a rapidly-evolving external environment and in meeting member expectations for choice, access and speed of decision-making,” said Patrick Casey, registrar of credit unions.
“Changes are required to the traditional credit union business model to meet those needs. The financial metrics presented in the financial conditions report should be considered in that context.”
Some credit unions are also exposed to the risks of Brexit, with “42 community credit unions with total assets of €1.98bn and total membership of c.406,000 … operating in the counties along the border with Northern Ireland,” said the report.
But it added that credit unions enjoy a competitive difference, with a highly respected brand, member loyalty and a member-centric ethos.