Brian Lenihan Jnr (Dublin West, Fianna Fail)

I am replying on behalf of the Minister for Finance, Deputy Cowen. I thank Deputy Healy for raising the matter. It is an important issue which the Department of Finance is examining. Under section 35 of the Credit Union Act, loan terms over five and ten years are limited to 20% and 10% respectively of each credit union's portfolio overall. These limits may be changed by ministerial order under the Act.

The Irish League of Credit Unions is proposing an increase in the lending limits to 40% for five year loans and 25% for ten year loans. The league argue that the current limits on long-term lending affect the competitiveness of the credit union movement, as credit unions are not in a position to compete with the banking sector in one of the more demand driven areas of the lending market.

The Registrar of Credit Unions is opposed to any change in the lending limits at this time, primarily because of the danger of increased credit risk. He is of the view that underwriting skills are weak in many credit unions, and that arrears and bad debt provisions in the movement overall are rising. In his view, the ability of credit unions to mange the inherent risks arising from long-term lending is not sufficiently developed.

The Minister for Finance appreciates the concerns of the credit union movement, which Deputy Healy outlined, in regard to long-term lending and acknowledged them in his address to the consultative general meeting of the Irish League of Credit Unions in April 2006. In particular, he noted the strong view held by credit unions that increased longer-term lending could make a substantial contribution to alleviating the issue of surplus investment funds. In considering any change to the lending limits, however, it is important to ensure that it does not lead to any worsening in the overall risk profile of credit union lending. The objective is to ensure the funds entrusted to credit unions by members are not put at risk.

Given the divergence of views on this important issue, the Department of Finance concluded that further assessment and analysis was required of the appropriateness of the proposed easing of current lending limits, balancing the requirement to support the development of credit unions with the requirement to safeguard members' savings. Consequently, the Minister for Finance referred the matter to his credit union advisers, the credit union advisory committee, requesting their advice as to whether a review of the current limits on long-term lending by credit unions should be initiated. The credit union advisory committee is very aware of the importance of this issue and its recommendations are expected soon.

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