Credit unions - major changes ahead

As the Financial Regulator concludes his review on the banking sector, he is turning his attention to Credit Unions. His recent stress tests on Credit Unions are expected to show increased provision requirements on loan books and this is causing intense debate on the sector’s future direction.

“Given the expected adverse stress test results and the challenges facing 400-plus individual Credit Unions to operate, compete, and be regulated in the wider financial sector, it is likely that there will be a major amalgamation of Credit Unions into fewer and larger entities – one possible method to do this is on a countywide basis,” said Colm O’Grady, Credit Union specialist with Russell Brennan Keane, Chartered Accountants and Business Advisers.

Colm continued “This should make the sector easier to regulate. Credit Unions can then step up to fill a gap in the market following the eventual consolidation of the retail banks to the twin pillars promised by the new Minister for Finance. It’s a great opportunity for Credit Unions to provide more services to members and become bigger players in the financial sector. However, keeping the community ethos of Credit Unions will be a challenge in this new environment.”

Currently the Financial Regulator has placed restrictions on lending policies and has diverted Credit Unions’ limited resources to intensive and additional reporting obligations. “The sooner clarity is brought to the strategic direction of the sector the better for all stakeholders,” says Colm, “Credit Unions need to get back to their core purpose, providing a source for savings and lending to members of their communities. This will ensure the ultimate survival and growth of the sector.”

The boards of progressive Credit Unions may well see merit in reading the signs of things to come and face up to strategic options for amalgamations rather than wait for imposed changes.

Russell Brennan Keane is hosting a seminar focusing on the anticipated changes in the Credit Union sector, with a special keynote speaker, chief economist, Jim Power. The event is scheduled for May 10, full details of the event are at www.rbk.ie/creditunions or call (01 ) 6440126 to register.

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