A new report on the credit union sector by the Central Bank reveals another challenging year as credit unions continued to navigate through the impacts of Covid-19 as well as other business challenges.
The Central Bank's eighth Financial Conditions of Credit Unions Report said credit unions participated in the recovery in credit demand as Covid restrictions were eased.
But their overall loan to asset ratio at 27.1% remains close to historically low levels.
The report noted that nearly two years after the introduction of additional capacity in credit union's regulatory framework for house and business lending, credit union remains heavily dependent on unsecured personal lending.
Meanwhile, savings levels at credit unions continued to increase during the year to the end of September to total €16.79 billion.
But the the pace of growth during 2021 has slowed compared to 2020, which the Central Bank said may reflect steps taken by many credit unions to manage savings inflows and also the reversal of some Covid-19 effects.
"Asset and liability management remains a key priority given the sectoral imbalance between savings and loans which has been growing in recent years," the Central Bank stated.
Today's report also shows that credit unions' reserves have increased marginally from 15.9% at the end of September 2020 to 16% at the end of September 2021.
"This is a positive trend given the importance of reserves in underpinning member confidence, particularly at times of uncertainty, disruptive change and where sustainability challenges persist," the Central Bank said.
The report also notes that changes in the financial services sector are being driven by rapid technological transformation, new entrants to the market and the planned exit of some incumbent providers, including Ulster Bank and KBC Bank Ireland.
"For credit unions to continue to be relevant to their members into the future, they need to leverage potential opportunities by embracing the process of innovative business model change within existing legislative and regulatory flexibilities," the Central Bank said.
The report also highlights that credit unions need to understand the impact of climate change on their risk profile and enhance existing risk management frameworks to ensure robust climate risk identification, measurement, monitoring and mitigation.
Registrar of Credit Unions Patrick Casey said that notwithstanding some positive trends in the data, credit unions need to address the underlying sustainability challenge arising from the long term divergence between lending and savings.
"Addressing sustainability through business model change, including by availing of the capacity and scope within the existing regulatory framework, requires effective leadership, strategic thinking and sectoral collaboration, supported by strong governance and embedded risk management at a credit union level," Mr Casey said.
"Credit unions need to focus on evolving their business model and take advantage of opportunities that are available - including lending on a safe and sound basis to service their members' needs," he added.
Kevin Johnson, CEO of the Credit Union Development Association, said the credit union movement could play a more active role in supporting housing association ownership, home ownership and retrofitting through sustainable and prudent lending, particularly as banks continue to reduce their presence in local towns and villages across the country.
"While credit unions have invested heavily in their digital capabilities in recent years to meet the convenience needs of many consumers, they have not abandoned those, of all ages, that prefer the face-to-face customer experience, whether it's a simply transaction or a complex query," Mr Johnson said.
Kevin Johnson said the sector can only achieve its potential though continuing with their business model change, and this has to be enabled by an appropriate legislative and regulatory framework.
"Given the right structure, this could increase from current level of €5.25 billion to €10.5 billion. We are constructively engaged in the Government Policy Review process and look forward to amended legislation that will enable all credit unions and their members prosper," he added.