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Irish Credit Unions – Leadership required
By Colm O'Grady, Credit Union Partner, Russell Brennan Keane
Apr 24, 2012

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Irish Credit Unions have taken significant impact from the economic downturn, in terms of dealing with increasing arrears on loan repayments, incurring significant loan provisions/bad debt write downs, and dealing with increased regulation and scrutiny from the Central Bank.

Colm O’Grady, Credit Union Partner, Russell Brennan Keane commented “The much anticipated final report of the Commission on Credit Unions is due for release shortly and this will see further changes announced for the sector. However, there is an expectation that it may not be the answer to all the challenges and opportunities the sector is facing”  

As a whole, the sector is financially strong and has reserves to deal with the fallout from the economic downturn so far. Irish Credit Unions have the highest membership penetration in Europe

“Strong leadership is required as the Irish Credit Union movement navigates its way through increased regulation, a reducing asset and income base, a need to become more main-stream and impact on the financial services it provides. Significant restructuring of the sector is essential” said O’Grady.

Increased collaboration and mergers between the 400 plus Credit Unions needs to be significantly increased to deal with some of the following opportunities and challenges:  

Financial Regulation – The interim commission report announced new measures including internal audit, compliance risk management, and director’s fitness rules. It will be challenging for smaller Credit Unions to comply and fund the implementation of the various regulations.

Viability Reviews - Credit Unions have been reducing in size through reducing loan books, member’s withdrawal of savings to pay off loans and day to day living expenses. Credit Unions have a significant challenge in continuing to achieve a surplus each year, to make dividend payments and satisfy Regulatory Reserve ratios. Viability reviews will be required to keep individual Credit Unions viable; including cost cutting, restructuring, redundancies and resource sharing,

Loan book arrears – continues to be a huge challenge for Credit Unions. The introduction of more stringent provision requirements by the Central Bank will have a further negative impact on Credit Unions’ reserves this year. The proposed Insolvency Bill should bring some clarity and movement to this area; however, it is going to continue to take significant resources and write-downs.

Cash Reserves - €12bn in savings currently in Credit Unions across the country reflect a solvent financial sector, the potential to play a stronger role in bringing liquidity to the market place and assisting in the economy’s recovery. However, this is being hampered by constraints and regulation over the type and amount of lending permitted.  A lack of expertise in the sector regarding mainstream lending is a weakness in addition to the significant red tape at regulatory level restricting growth.

Technology - There is a significant number of different systems being used within the sector with many Credit Unions still not providing electronic banking services to members. This creates significant obstacles to collaboration/resource sharing between Credit Unions, administration efficiencies, and the sector not appealing to a younger member base.

Credit Union Boards - Local voluntary hard working boards throughout the country have played a huge part in the success of the movement to date. However, this may now act as an impediment to the sectors evolution due to a reluctance to give up complete local control. Due to the voluntary nature of the Boards this means that the decision making process can also take longer. The focus should continue to be on what is best for individual Credit Union members, coupled with controls and checks to ensure that Credit Unions still retain a local say.

O’Grady concludes “Strong vision and leadership is required in the sector if it is to continue to evolve and play a meaningful role in the Irish economic recovery. The sector and professionals within the sector certainly have the ability, the resources, the asset base and members to transform the sector taking it to the next level. However, it is difficult to see any significant change unless collaboration and mergers between Credit Unions take place”

For further information, please contact Colm O'Grady, Credit Union Partner, Russell Brennan Keane. Colm has worked with Credit Unions for over 20 years and is well experienced on the issues and complexities the sector is currently facing.

Colm O'Grady,
Credit Union Partner,
Russell Brennan Keane,
96 Lower Baggot Street,
Dublin 2.
T: 01 6440100

Russell Brennan Keane are a firm of accountants, taxation consultants & business advisers based in Dublin, Athlone & Roscommon. We provide a full range of professional advisory services to a range of credit unions in Ireland.

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