The Irish credit union sector has hailed proposals by the Central Bank which would allow it to almost triple the amount offered for mortgages and business loans.
The Central Bank is planning to ease lending limits on the sector, from the current €2.9bn to €8.6bn. New rules would allow a credit union to lend up to 30% of its total assets for housing and up to 10% of its assets for business loans.
Credit unions in Ireland have been lobbying for the changes – which will now go to public consultation – and hope the they will help them continue to grow their share of the mortgage market.
Regulation of the sector will continue to provide safeguards for member funds, said Central Bank deputy governor Sharon Donnery. But, she added: “We are committed to ensuring the regulatory framework is responsive and appropriate in a financial system that is changing at pace.”
The proposals mark “an important milestone for credit unions and their members and provide further opportunity for the sector to develop and collaborate in a meaningful and sustainable manner,” said Donnery. “Our expectation is that the proposed changes to the lending framework if implemented, would enable those credit unions that wish to undertake increased house and business lending activity in order to diversify loan books, improve loan-to-asset ratios and better deliver for their members.”
Kevin Johnson, CEO of the Credit Union Development Association (Cuda), which has been lobbying for the changes, said the changes “mark a major step forward for the sector, empowering credit unions to enhance their offerings in both the mortgage and business lending markets.”
Johnson hopes the move will help credit unions increase their market share – with the sector already accounting for a growing share of mortgage switches.
“With these enhanced lending limits,” he added, “more credit unions will be attracted to helping members finance their home purchase and collectively the sector is poised to more than triple their current mortgage loan books to over €2bn in the coming years, further establishing themselves as strong contenders in the Irish mortgage market.”
Related: Swoboda credit union conference – leadership, strategy and transformation
In 2017, he said, the average credit union mortgage was around €110,000. Today, that figure has risen to over €200,000, though it remains below the banking sector average, which exceeds €300,000. “Credit unions cater to a broader range of applicants,” he added, “as reflected in the average household income of their mortgage holders, which is around €75,000 – significantly lower than the €100,000 average for bank mortgage customers.”
Business lending has also seen considerable growth across the sector, said Johnson, “supported by the recruitment of specialists in this area. These enhanced lending limits and positive adjustments to underwriting requirements will enable credit unions to compete more intensively for business loans within their local communities.”
Under the new legislation, credit unions will also be permitted to collaborate with one another to offer services such as home loans to members of other credit unions, he said.
“For the first time, credit unions will have the ability to refer mortgage or business loan applications to other credit unions when they are unable to provide the loan themselves. This effectively means that every credit union in the country will be able to offer mortgages – a significant milestone for the sector.“
Johnson added: “The appetite for credit union mortgages continues to grow among the public, reflecting a clear demand for alternatives to traditional banks. Credit unions are stepping up to meet this demand by upskilling, modernising their offerings, and bringing much-needed competition to the market. For several years, regulators have encouraged credit unions to expand their lending, and the sector’s efforts are now bearing fruit.
“Credit unions are uniquely positioned to drive competition and provide real alternatives in Ireland’s financial services market. These proposed changes will help credit unions continue their phenomenal growth in lending, further cementing their role as key players in the Irish financial landscape.”
David Malone, CEO of the Irish League Credit Unions, which has also lobbied for the changes, said: “These proposals represent a vital step forward, further empowering credit unions to support homebuyers and businesses. It is imperative that these necessary changes are implemented at the earliest opportunity,” he said.
