Credit union savings slow as households loosen purse strings, report says

Households slowed their savings rate with Irish credit unions in the year ending September – and even declined in the last month of the period – as the industry tightened limits on customer deposits and individuals, and that families loosen their purse strings as Covid restrictions have eased.

Savings in the sector increased by 2.8% over the year, after falling 0.7% in September, to 16.8 billion euros, according to the latest annual report from the Central Bank on Financial terms of credit unions, released Tuesday. It follows a 7% increase in savings over the previous 12 months, which has compounded challenges in an industry where customer deposits have long far exceeded loans.


“This slowdown in [savings] growth may reflect actions taken by many credit unions to manage inflows of savings and also some reversal of the negative effects of Covid-19, ”the report says.

“Asset and liability management remains a key priority given the balance sheet imbalances that have increased in the industry in recent years. “

Many credit unions have placed limits in recent years – up to € 10,000 in some cases – on the amount of savings they will accept from customers, as banks charge negative rates on deposits. in the short term accepted by the sector. The European Central Bank (ECB) currently applies a rate of minus 0.5% on the excess liquidity it withdraws from banks.

While credit unions were part of a wider recovery in demand for credit in Ireland as part of a gradual reopening of the economy over the 12 months, the average industry player had only lent 27 , € 10 per € 100 of assets in September, near historically low levels, according to the report.

The ratio is down from 49 percent in 2007 and ranks among the lowest among credit union movements in the world. The optimal loan-to-asset ratio is widely considered to be around 50%.

Even though the regulator has eased credit restrictions for the sector in recent years to provide additional capacity for home and business loans, “the credit union remains heavily dependent on unsecured personal loans,” according to the report.

Total loans in the sector increased by 3.1% during the year, reaching 5.25 billion euros. While the average level of delinquent loans fell from 4.6% in September 2019 to 4.8% a year later, at the height of the coronavirus shock, the ratio had fallen to its lowest level in six years of 3.4% at the end of the last reporting period.

Consolidation across the movement continued, with the number of credit unions in the state increasing from 229 to 214 in the 12 months of the report. By comparison, there were 428 credit unions at the end of 2006.

The total surplus income declared by the sector increased by almost 68% to reach 122.2 million euros, as a result of the write-backs of provisions for bad debts.

“Despite some positive trends in the data, credit unions need to ensure that, to the extent that reported surpluses may have been affected by one-time gains, this does not prevent them from addressing the resulting underlying sustainability challenge. of long-term divergence. between credit and savings, ”said Patrick Casey, Registrar of Credit Unions.

“Addressing sustainability through a change in business model, including by leveraging the capacity and reach of the existing regulatory framework, requires effective leadership, strategic thinking and sector collaboration, supported by effective leadership, strategic thinking and sector collaboration. strong governance and integrated risk management at the credit union level. “

Reacting to the report, Kevin Johnson, chief executive of the Credit Union Development Association, which has more than 50 credit union members, said the move could double its total lending to € 10.5 billion over the course of the year. time with an “appropriate legislative and regulatory framework”.

A government review of the policy framework around the sector, which began last year, is now at an advanced stage, Finance Minister Paschal Donohoe said last month.

“The credit union movement could play a more active role, within their respective communities, in supporting the ownership of housing associations, home ownership and renovation through sustainable and prudent loans, especially as banks continue to reduce their presence in local towns and villages across the country, “Mr Johnson said.

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