Mr. Patrick Casey:

Senator O'Donnell may be aware that we have been looking at the lending framework that applies to credit unions having concluded a consultation earlier this year on the investment framework that accommodated the provision of social housing funding. We are looking at proposals to remove the current lending limits for five and ten-year loans. This is connected to the rigidity that has to do with the fact that the denominator is loans. That has caused some issues for individual credit unions – this has been touched on previously – and has also caused some pro-cyclical issues. One option is to replace these with new tiered concentration limits for house and commercial lending. That would involve a base level of limits for all credit unions but then higher levels and more flexibility for those which can demonstrate the capacity to undertake additional lending from our prudential perspective. That would cover both categories - house and commercial lending. I am conscious that much of the discussion here is in SME sector rather than the house lending sector.

Credit unions are permitted to provide commercial loans, as they are termed under the credit union framework, for up to 50% of their regulatory reserves.

Currently the sector has about €90 million outstanding in loans to SMEs, with an average loan size of about €20,000, which would be quite different from the average loan size that the three main banks operating in the market would provide. Currently, credit unions are only using about 10% of the existing framework capacity. They have an opportunity to meet any demand at a local level for SME lending. I would say their typical SME loan is to a small, local owner-managed business such as a shop, trades person or farm. That is their traditional sweet spot in terms of lending into SMEs. That is linked to personal lending in a way; it is coming through the member channels that they have rather than varying outside them.

We did send a questionnaire to the sector during the preparatory work for our forthcoming consultation to ascertain the appetite among those who thought there was a need for a change in the framework. What they saw in total lending for five years from now, to 2022, was only €136 million. We need to ground the discussion in some realism as to the demand the credit unions themselves see in respect of SME lending; it is not significant from their own perspective.