Credit Union Interim Commission Report

(24 Apr 2012)

Credit Union Regulation
The interim commission report announced new measures including internal audit, compliance risk management, and director’s fitness to act rules. It will be challenging for smaller Credit Unions to comply with the proposed changes, in addition to fund the implementation of the proposed various changes to current regulations.

Viability Reviews
Over the past three consecutive years, many 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. The main difficulty facing many Credit Unions is to the ability to continue to achieve a surplus year on year, and to recommend dividend payments; while continuing to satisfy Regulatory Reserve ratios. Many Credit Unions will be required to conduct viability reviews as a going concern exercise; including cost cutting, restructuring, redundancies and resource sharing,

Loan Book Management
Loan book management continues to be a challenge for many Credit Unions. The introduction of more stringent provision requirements by the Central Bank is expected to have a further negative impact on Credit Unions’ reserves this year. The proposed personal Insolvency Bill may bring some clarity for the movement in this area; however, Credit Unions should be aware that loan book management is going to continue to take significant resources and write-downs to effectively rectify historical bad or high risk lending practices.

Cash Reserves & Liquidity
Members currently share approximately €12 billion in savings in Credit Unions across the country which suggests a solvent financial sector and 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 gap in the availability of professional expertise in the sector regarding mainstream lending may be considered a weakness, in addition to the significant red tape at regulatory level which is restricting the possibility of growth.

Technology & Resources
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 could be seen to create significant obstacles with collaboration and/or resource sharing between Credit Unions. There is a possibility that many credit unions within a chapter may be able to share administration resources, it servicing, and similar support in order to reduce operating expenses. Also, there appears to be some disscussion regarding the lack of appeal of the credit union movement to a younger member base.

Credit Union Officers
Credit Unions are usually operated by local voluntary hard working boards throughout the country, which 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. In addition, the voluntary nature of the Boards means that the decision making process can also take longer, due to routine of board and committee meetings. The focus should continue to be on what is best for the individual Credit Union members, together with efficient and effective controls and checks to ensure that Credit Unions still retain a local say.

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