The Central Bank is concerned that some credit unions may not be up to the challenge of remaining viable in a rapidly changing sector.
Addressing the Credit Union Managers’ Association’s spring conference, Credit Union Registrar Anne Marie McKiernan said some boards had so far failed to develop new, sustainable business models to deal with the current challenges they face.
Ms McKiernan said there were questions around the “quality of strategic thinking and planning” in many credit unions, with strategic plans often having generic or high-level aspirations but no clear plan for their future survival.
She said credit unions were seeing operational costs increase at the same time that revenue was declining, which may require them to significantly change their business model.
Ms McKiernan said the latest figures showed loans to credit union members falling to €4bn, down 10% on September 2013. Meanwhile, interest income has almost halved since 2009.
She also cited issues with credit unions’ arrears and the loan-to-asset ratios in some organisations, with half of all credit unions currently subject to some form of lending restrictions.
Ms McKiernan said that the biggest challenge facing the sector was its ability to remain relevant to new and existing members in the years ahead, and it was vital that credit unions analysed their needs and responded accordingly.
However she warned that any new developments had to be feasible, costed and properly risk-managed.
A number of credit unions have opted to restructure or merge in order to help deal with the challenges they face and Ms McKiernan said this would gather pace in 2015.
There was now a “greater acknowledgement within the sector of the role which restructuring plays” she said.
Ms McKiernan said the Central Bank would amend the way it interacts with credit unions this year, increasing engagement with those deemed to be ‘low impact’ while applying a more targeted approach to those considered a higher risk.
The Central Bank would also introduce a new “comply or explain” system for credit unions that remain under lending restrictions, allowing them to put a business case forward for the removal of these limits.
This change was taking place because many had failed to adequately address their weaknesses, she said, even though the imposition of lending restrictions was designed to be a catalyst to encourage such a move.
