Financial regulator questions large Credit Union loans
The Financial Regulator today raised questions about significantly large loans being paid out by the Credit Union to members who could get a better rate elsewhere.
Figures obtained from branches of the movement throughout the country show a considerable number of loans granted in excess of 50,000 euro.
Patrick Neary, chief executive of the Financial Regulator, suggested borrowers would get a more competitive rate for such amounts in other financial institutions.
He told the World Credit Union Conference in Dublin that questions must be asked as to why “sophisticated” borrowers were not choosing to avail of cheaper options elsewhere.
Furthermore, he warned the “delinquency” of just one or two of these large loans could threaten the savings of members.
“It is interesting to note the demand by members for loans of this size from credit unions when we compare the cost of credit in credit unions with that available from other financial institutions,” he said.
“One should always question why any financially sophisticated borrower would not obtain the best rate of loan finance available.” Mr Neary warned if the underwriting of such loans wasn’t sufficiently robust members savings could be at risk.
“The move to more large scale, complex lending requires additional expertise and tighter controls to manage the higher risk to members’ funds and heightens the challenges for boards of credit unions,” he said.
The average size of a loan from the Credit Union is around 8,000 euro.
Information from the 179 of the country’s largest branches – representing more than 80% of total credit union assets – showed almost nine out of ten provided loans in excess of 50,000 euro to individual members.
“In addition, a considerable number of loans in excess of this amount have been granted to individual credit union members,” Mr Neary said.
Credit unions in Ireland were now at a “crossroads” and faced major challenges including decreasing popularity, more loan defaults, inadequate technology and problems with regulations, according to the Financial Regulator.
“Changes in Irish society, the economy and increased competition have all combined to produce a new business environment where credit unions will have to make hard decisions in order to secure the future of the sector,” Mr Neary said.
“On the positive side, I get a real sense that there is now a recognition that the “winds of change” are blowing, and that there is an enhanced desire, perhaps even an impatience, among stakeholders in the credit union sector for change,” he added.
