Under new rules, nearly 300 credit unions have been told by the Central Bank of Ireland to limit the amount of loans they distribute each month.
The Credit Union Managers’ Association, a trade group, said it is receiving letters from credit unions saying the Central Bank has informed them to restrict their lending. The bank’s new rules caps some credit unions at a maximum monthly lending limit of 100,000 Euros or approximately $127,650.
CUMA said it has contacted the Central Bank about its concerns with the new rules. CUMA representative Selina Gilleece said while credit unions have been affected by Ireland’s recession, “they have weathered the worst of it so far.”
A Central Bank spokesman told the Irish Independent, “As part of our ongoing supervision, the Central Bank takes regulatory action in individual credit unions where appropriate."
James O’Brien, Central Bank’s registrar of credit unions, told attendees at the bank’s annual credit union regulatory forums this year that the regulator has grown concerned with the number of credit unions experiencing investment losses in their portfolios.
“Falling income, a static cost base and downward pressure on dividends are all indicators that the sector remains under significant stress. An increasing number of credit unions have migrated into the high-risk category and are on our supervisory watch list,” O’Brien said.
Jimmy Johnstone, president of the Irish League of Credit Unions, sent a letter to the Central Bank criticizing the new limits, according to one of Ireland’s newspapers. The league is a member of the World Council of Credit Unions.
“The league board, like its member credit unions, is exasperated by the imposition of far-reaching regulatory restrictions which are directly responsible for credit unions not being able to lend to longstanding members,” Johnstone wrote.
According to WOCCU, there were 498 credit unions with a total of $18 billion in assets and 3 million members in Ireland in 2010. O’Brien said for those increasing number of credit unions that are in financial difficulty there is a recurring trend.
“[They] have been poorly governed by boards and management and effective oversight by the supervisory committees has been nonexistent,” O’Brien said at the CU regulatory forum.
“Many of the poor governance practices have come about in part due to the current loose legislative framework in place for the prudential oversight of the sector, but also because of the general poor compliance culture built up in many credit unions over the years,” he added.
To help struggling credit unions, the Central Bank said it has developed a three-point plan that involves resolving “weak and nonviable credit unions” while protecting members’ savings. The bank also wants to establish an adequate legislative and regulatory framework to protect the financial stability of individual credit unions and allow the sector to develop and bring about longer term restructuring of the sector to ensure its long-term sustainability.
Meanwhile, CUMA said Ireland’s government has established a Commission on Credit Unions to review the future of the country’s movement and make recommendations in relation to the most effective regulatory structure for them, “taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect depositors savings and financial stability.”
The commission will meet with the Ireland’s Department of Finance to make recommendations on legislative proposals. An interim report is scheduled to be submitted to the minister for finance by Sept. 30 based on the meeting. A final report, to be complete by March 2012, will outline requirements.