IRELAND’S credit unions have surplus assets of €15 billion. It’s money that could be used to support communities including helping businesses move on from Covid, or giving thousands of young first-time buyers the opportunity to purchase their own home.
Credit unions acting collaboratively can become a major player in the mortgage SME lending markets.
Already, credit unions have demonstrated how they can evolve through successful collaborations. Nearly 70 credit unions now offer current accounts – 10 of them in Cork.
However, Credit unions’ ability to lend money to communities and families who would benefit from it, is blocked by regulatory limits, which unfairly, do not apply to high-street banks. This means that traditionally under-served parts of the country are arbitrarily cut off from funding.
The Irish economy is about to endure a prolonged inflationary squeeze that will be made worse by supply issues at home and abroad. This follows two years of stop-start pandemic restrictions that have permanently shuttered some businesses and put many others on life support. Meanwhile, the domestic banking market is shrinking and becoming less competitive due to the exit of Ulster Bank and KBC.
Consumers now have fewer secure ways to borrow money or avail of financial products, yet it is precisely during these periods of economic difficulty that competition and diversity matter. A healthy market creates lower costs. In the financial sector, lower costs mean small businesses are in a better position to borrow to fund recovery and growth and families to take out a mortgage or fund education.
The restrictive lending limits applied to SME and mortgage loans also need to be reviewed.
These limits mean credit unions could provide only 3% of Irish mortgages or less than 10% of all small business loans (SME) loans. The impact of these lending limits on individual credit unions is stark. For example, a typical mid-sized credit union with assets of €70m, assuming an average mortgage of €350,000, can only offer 15 to 20 mortgages under the current limits – not 15 or 20 per year, but in total.
Crucially, these limitations do not apply to banks. Indeed, Ireland’s three pillar banks, AIB, Bank of Ireland, and Permanent TSB, hold 70% of the mortgage market, while AIB, Bank of Ireland and Ulster Bank collectively hold a 90% share of the SME lending market.
These rules are blocking credit unions’ entry into these markets and it puts them at a clear competitive disadvantage and significantly reduces consumer choice.
Funding the future
We should of course not be flippant about financial regulation—it exists for a reason. The Recession showed us all that a laissez-faire attitude to high-risk financial practices will continuously lead to economic ruin. However, while the pillar banks received over €67 billion of support during the financial crisis, credit unions largely sustained themselves with no recourse to public finances.
Credit unions have evolved their propositions over the last few years and now want to significantly increase their footprint in SME lending and mortgages.
However, the shape of Government and Central Bank policy must also evolve to support Credit unions. The opportunity is huge and in the public interest as Credit union funds can be provided to support purchase of homes and also support small businesses.
Earlier this month, the Irish League of Credit Unions met with the Minister of State for Financial Services, Credit Unions, and Insurance, Seán Fleming, who recently remarked that he would like to see credit unions ‘fill the void’ left by Ulster Bank and KBC.
At this meeting, we recommended the establishment of a policy taskforce, involving representatives from the Department of Finance, Central Bank, and Ireland’s credit union representative bodies. This taskforce would consider how credit unions can evolve their SME and mortgage market propositions while also considering how regulations could evolve to support this. This would clearly bring immediate value and choice to all consumers.
Meanwhile, Ireland’s credit unions continue to offer support to small local communities even as high street banks close their physical branches and retreat online. We know the people and communities we serve and how to support them. Despite this level of local knowledge and expertise, we are being actively penalised by strict and outdated policy and rules.
We are not asking for special treatment, we’re asking for a level playing field. The credit union sector will put forward its strategic vision for national credit union mortgage and SME lending. However, we also need an evolution of regulatory restrictions, which will allow credit unions, and the towns, villages and communities we serve in Cork, and across Ireland, to unlock our potential.