Credit unions in IRELAND have a surplus of assets of 15 billion euros. It’s money that could be used to support communities, including helping businesses get out of Covid, or giving thousands of young first-time buyers the chance to buy their own homes.
Credit unions acting collaboratively can become a major player in SME mortgage markets.
Already, credit unions have demonstrated how they can scale through successful collaborations. Nearly 70 credit unions now offer current accounts, including 10 in Cork.
However, the ability of credit unions to lend money to the communities and families that would benefit is blocked by regulatory limits that, unfairly, do not apply to large banks. This means that traditionally underserved areas of the country are arbitrarily starved of funding.
The Irish economy is set to come under prolonged inflationary pressure which will be compounded by supply issues at home and abroad. This follows two years of stop-start pandemic restrictions that have permanently closed 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 take advantage of financial products, but it is precisely during these tough economic times that competition and diversity matter. A healthy market creates lower costs. In the financial sector, lower costs mean that small businesses are better placed to borrow to finance recovery and growth and families to take out a mortgage or fund their education.
The restrictive lending limits applied to SME loans and mortgage loans also need to be reviewed.
These limits mean that credit unions could only provide 3% of Irish mortgages or less than 10% of all loans to small businesses (SMEs). The impact of these loan limits on individual credit unions is striking. For example, a typical medium-sized credit union with assets of €70 million, assuming an average mortgage of €350,000, can only offer 15-20 mortgages within current limits – not 15 or 20 per year. , but altogether.
Importantly, these limitations do not apply to banks. Indeed, Ireland’s three anchor banks, AIB, Bank of Ireland and Permanent TSB, hold 70% of the mortgage market, while AIB, Bank of Ireland and Ulster Bank collectively hold 90% of the SME lending market.
These rules block the entry of credit unions into these markets, place them at a clear competitive disadvantage and significantly reduce consumer choice.
Financing the future
Of course, we shouldn’t be flippant about financial regulation – it exists for a reason. The recession has shown us all that a laissez-faire attitude to high-risk financial practices will continually lead to economic ruin. However, while the pillar banks received more than €67 billion in support during the financial crisis, the credit unions have largely survived without recourse to public finance.
Credit unions have evolved their offerings over the past few years and now want to significantly expand their footprint in SME lending and mortgages.
However, the form of government and central bank policy must also evolve to support credit unions. The opportunity is huge and in the public interest because credit union funds can be provided to support home buying and also to support small businesses.
To take part
Earlier this month, the Irish League of Credit Unions met with Minister of State for Financial Services, Credit Unions and Insurance, Seán Fleming, who recently remarked that he would like to see credit unions credit ‘filling the gap’ left by Ulster Bank and CBC.
At this meeting, we recommended the establishment of a policy working group, involving representatives from the Department of Finance, the Central Bank and representative bodies of credit unions in Ireland. This working group would examine how credit unions can evolve their proposals for SMEs and the mortgage market while considering how regulation could evolve to support this. This would clearly bring immediate value and choice to all consumers.
Meanwhile, Irish credit unions continue to offer support to small, local communities even as big banks close their physical branches and withdraw online. We know the people and communities we serve and know how to support them. Despite this level of local knowledge and expertise, we are actively penalized by strict and outdated policies and rules.
We are not asking for special treatment, we are asking for a level playing field. The credit union sector will present its strategic vision for national credit union mortgages and SME lending. However, we also need an evolution in regulatory restrictions, which will allow credit unions and the towns, villages and communities we serve in Cork and across Ireland to unlock our potential.