12 01 2021 Insights Litigation & Dispute Resolution

The Central Bank of Ireland Report on the financial conditions of Credit Unions, 2020 - Credit Unions show resilience in 2020 but challenges lay ahead

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On 17 December 2020, the Central Bank of Ireland published its latest update on the financial position of the credit union sector in Ireland.[1]

Nearly nine years on from the publication of the Report of the Commission on Credit Unions (the “Commission”), the sector continues to mature, consolidate and strengthen and while certain challenges remain (in particular rising cost income ratios, higher savings and lower levels of lending), the strengthened financial position of credit unions since 2012 has made the sector more resilient to deal with the current challenges. However, the Central Bank of Ireland warns that the economic outlook is uncertain with COVID-19 and Brexit impacts potentially yet to be fully realised. Good governance will be key to overcoming the challenges and credit unions will need to continue to monitor adverse trends while assessing the suitability and sustainability of its business model and strategic objectives.

In this insight we look at the development of the sector since the publication of the Commission and assess the future challenges for the sector.

Report of the Commission on Credit Unions[2]

The Commission was established after the financial crash to “review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for credit unions, 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.”[3]

The Report resulted in an overhaul of the legislative and regulatory framework governing credit unions. A tiered approach to regulation of credit unions was recommended where different rules were to be applied depending on the nature, scale and complexity of the credit union and their respective operations and business models. Ultimately the Credit Union and Co-operation with Overseas Regulators Act 2012 provided the Central Bank of Ireland with powers to make regulations on regulatory requirements for credit unions.

The Report also made a number of recommendations including in relation to the voluntary restructuring of a sector in need of consolidation. At the time of the Report, there were 404 credit unions in Ireland with total assets of c. €13 billion. The Report called for the establishing the Credit Union Restructuring Board with the aim of achieving a lower number of larger credit unions through voluntary amalgamations and transfers of engagements[4].

While some consolidation has been achieved, there is scope in the sector to move to a mature stage of development through diversification of business models and, if necessary further amalgamations.

The 2020 Central Bank update

At 30 September 2020 there were 229 trading credit unions; down from 243 at 30 September 2019 and 343 at 30 September 2015 and 409 in 2011. Meanwhile the number of larger credit unions (with assets over €100 million) has increased to 62 with smaller credit unions reducing to 10% of the total sector assets. This trend is set out in the table below:

Number of credit unions409343229
Total assets€13.78 bn€14.96 bn€19.42 bn

Number of credit unions with assets less than €40m

Number of credit unions with assets greater than €100m293762
Cost income ratios88.7%69%87%