Credit unions may need to be significantly restructured if arrears continue to rise and lending opportunities remain subdued, according to the sector's regulator.

James O'Brien, the Registrar of Credit Unions, made the comments at the National Supervisors Forum.

Mr O'Brien said: 'Not all credit unions will make it through this difficult financial and economic environment in their current structure.

'The subject of 'restructuring' within the credit union sector must now be put firmly on the table for open and considered discussion.'

Mr O'Brien said the regulator would move swiftly to prevent a failure of a credit union.

He said: 'It is important ... that we are able to take appropriate pre-emptive action to restructure credit unions where we deem this necessary in order to protect members' funds and the maintenance of the financial stability and well-being of credit unions generally.'

The group intends to put forward proposals early in 2011.

'A failure of one or more credit unions could lead to a significant loss of confidence across the sector. This must be avoided,' Mr O'Brien added.

He said the regulator would work at identifying weak businesses, but he also called on credit unions to be proactive and consider mergers to pre-empt financial collapse.

He said that even greater reform may be needed than first proposed in a recent consultation paper.

Credit unions hold savings of €11.9bn and have 2.9m members.

Matthew Elderfield, the Financial Regulator, warned last month that credit unions were a source of concern.