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| Credit Unions to consolidate – survival depends on it |
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By
Colm O’Grady - Russell Brennan Keane
May 17, 2011 |
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The Credit Union sector is bracing itself for significant change and reform. “Given the expected adverse stress test results and the challenges facing Ireland’s 400 plus individual Credit Unions, amalgamation of Credit Unions into larger entities are seen by Central Bank strategists as the way to go. The roadmap is not yet clear but one possible method suggested is a hub and spoke approach, the alternatives include a county wide approach” said Colm O’Grady at an event yesterday hosted by Russell Brennan Keane, Chartered Accountants and Business Advisers.
Commenting on the Firm’s latest industry benchmarking study, Colm said “a significant number of the Credit Unions participating in the survey, increased their lending rate in an effort to improve bottom line. Loan rates among those surveyed ranged from a low of 7.5% to 10.9%, representing value when compared with main stream banks personal loan interest rates. Only 60% of Credit Unions surveyed paid a dividend last year indicating some stress in the sector”. The research also indicated that larger Credit Unions had weathered the current challenges and were performing better than their smaller counterparts”.
The majority of Credit Union’s surveyed indicated they were ready for the much anticipated structural and legislative changes flagged, so that they can focus on running their Credit Unions and their core activities of savings and lending. The Government has told the IMF that a stress test review of the sector will be completed by the end of the month. Regulation and viability of so many Credit Unions are the big issues and the conclusions to the review will likely fuel the push towards amalgamations to strengthen Balance Sheets.
According to the updated IMF/EU agreement document, the State is to "obtain the necessary powers to promote a higher degree of consolidation in the sector through mergers where appropriate and with government financial support, if warranted."
Jim Power, Chief Economist with Friends First shared his views on prospects and challenges for the wider economy and the contribution of credit institutions to recovery .“Well managed, well regulated, solvent Credit Unions have a very bright future because they will fulfill a credit flow in the economy that is not being filled by the banking system” Jim continued by stressing that ‘’within the Credit Union sector ….it is all about being well regulated, confident and trusted”.
A bright future beckons with plenty of change coming but also plenty of opportunity for the sector.
Colm O’Grady,
Client Service Partner
Russell Brennan Keane,
Chartered Accountants and Business Advisers,
96 Lower Baggot Street,
Dublin 2
Telephone: +353 1 6440100
Fax: +353 1 6440190
Email: info@rbk.ie
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