Credit union lobby groups have called for loosening of laws to allow them to co-lend on projects and funnel deposits into the state savings program as the government reviews the policy framework for a A sector plagued for years by excess customer cash flow and limited loan demand.
According to Kevin Johnson, chief executive of the Credit Union Development Association, an industry submission to the Department of Finance earlier this year included a request to remove a legal restriction preventing credit unions from doing business with each other. .
The document, also signed by the Irish League of Credit Unions and the National Supervisors Forum, proposes that credit unions can lend as a group on larger transactions.
“Credit unions can bring business into banks, but are legally prohibited from bringing business into other credit unions, which is both anti-consumer and illogical,” Johnson said. “Credit unions should also be able to co-lend to enable them to pool their expertise and capital to finance larger transactions, such as community projects, and thus share the inherent risks and costs of administration. If credit unions can benefit from large pooled loans, this will allow them to put their members’ savings for productive and provident purposes while increasing their income. “
Mr Johnson added: “Credit unions, especially the smaller ones, are often faced with the scenario where an attractive loan proposal is made to them, but due to the credit limits placed on this individual credit union, they are forced to refuse. “
Meanwhile, the submission also calls for credit unions, struggling with excess deposits, to be able to place their customers in state savings products, similar to post offices. This would reduce the regulatory reserves that credit unions must hold.
While the Central Bank eased restrictions on lending early last year to allow credit unions to engage in longer-term loans, including mortgages and business loans, the government made a commitment last year, during its formation, to review the broader legislative framework of the sector.
Minister of State Seán Fleming, responsible for financial services policy, said last week that he planned to discuss the proposals from the review “with stakeholders shortly.”
Savings in the credit union sector rose 2.8 percent in the 12 months to € 16.8 billion, the Central Bank said last week.
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 for every € 100 of assets in September, near historically low levels.
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%.
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