Irish minister outlines plans for credit union growth

Minister Seán Fleming described credit unions as 'the most valuable assets in Irish society'

The Irish government wants to help the credit union sector become a strong, resilient and collaborative movement, said finance minister Seán Fleming.

Mr Fleming was a keynote speaker at the annual general meeting of the Irish league of Credit Unions. Founded in 1960, the apex is the largest credit union representative body on the island of Ireland and has an affiliated membership of more than 300 credit unions in the Republic of Ireland and Northern Ireland.

Mr Fleming said his appointment as minister of state with responsibility for credit unions was “unique” as it was the first time a minister has ever been given “direct responsibility for credit unions”.

His portfolio includes reviewing the policy framework within which credit unions operate; enabling and supporting the movement’s growth; helping credit unions expand their services; encouraging community development; and enabling the movement’s growth as a key provider of community banking.

He told delegates he had worked closely with the League as part of his ministry’s efforts to review the policy framework within which credit unions in Ireland operate.

As part of this, the government aims to recognise the role of the sector in developing volunteers and acknowledge its role as a large co-operative movement. The Ministry of Finance will also work to support investment and collaboration within the sector.

Mr Fleming praised the League for serving credit unions in both Ireland and Northern Ireland, providing “an excellent example of cross border collaborative initiative”.

He also acknowledged the work of the League in developing credit unions as SME lenders, with the Strategic Banking Corporation of Ireland and with the Sustainable Energy Authority of Ireland on funding for retrofit.

Credit unions are natural partners of the government, he added; as unsecured lenders they are well placed to help its initiatives to tackle climate change.

For instance, government departments and agencies have worked with the credit union sector on new products such as credit unions investing in funding Approved Housing Bodies, collaborating with Cultivate to provide agri-lending, or working with PeopL to provide general insurance products.

The minister said he is also looking at increasing the flexibility of some of the rules around the common bond so credit unions can provide more products to more members.

Another change will be introduction of service level agreements between credit unions and the Central Bank to help the sector create better regulatory dialogue while respecting the independence of the Central Bank.

“I’m happy to say that these proposals got broad support from all the representative bodies at the recent stakeholder meeting,” added Mr Fleming. “I would, however, caution against the temptation of believing that legislative change alone will tackle the challenges faced by credit unions today.

“Legislative amendments to the policy framework will not solve the financial and business model challenges arising from, muted credit demand, strong savings growth and high operating costs.”

Mr Fleming said he was committed to north-south co-operation and praised the League for encouraging and developing “collaborative ventures in the credit union sector in the north and south”.

Welcoming the League’s proposed transformation plan, he said he looks forward to engaging with the apex on growing lending, including mortgage and SME lending.

“It is encouraging to see that loans in the League’s credit unions here in the north were up 2.7% year-on-year in 2021,” he said. “An increase of 3.3% year-on-year was recorded in the League’s credit unions in the south. However, despite these positive developments, loan to asset ratios in the south are unsustainably low. The current loan-to-asset ratio of 27% must be increased significantly if the sector is to grow sustainably.

“Without collaboration and growth in lending credit unions will not be well placed to take advantage of the opportunity of bank branch closures without collaboration and increasing lending. My message to the credit union sector today is to lend more and keep building on the good work you have been doing.”

Mr Fleming has recently met with the Association of British Credit Unions and credit unions in Manchester, Leeds, Glasgow and Edinburgh, in addition to speaking with his UK equivalent, treasury minister John Glen.

“This gave me insight into the differing issues at play across the different legislative and regulatory frameworks,” he said.

The minister also touched on the rapid growth of fintech and digital banking which represents “both an opportunity and a challenge for credit unions”. He added that in many towns in Ireland the local credit union is now the only remaining financial institution, giving them “a great opportunity to fill the gap left by bank exits and closures”.

“There is great opportunity for credit unions to harness developments in fintech to broaden membership and grow lending and many have already begun to do so. There is also the challenge of balancing the use of new technologies while still keeping the essence of providing community banking.

“While the banking sectors north and south differ, many of the overarching issues I have noted apply to both jurisdictions,” he said.

In his concluding remarks, he said he believed the credit union sector as one of society’s “most prized possessions”.

“The local credit union and the role it can play in the economy and in communities is more important now than ever before,” he said.

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