Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The decision to transfer assets and liabilities, excluding the premises, of Newbridge Credit Union to Permanent TSB was necessary to safeguard members' savings as the only alternative option available to the Central Bank was liquidation, which would have seen unprotected savings of in excess of €1 million lost. This would have included the savings of charities, schools and individuals. For this reason, on Sunday, 10 November the Central Bank applied to the High Court under the Central Bank and Credit Institutions (Resolution) Act 2011 and received approval for the transfer of the assets and liabilities of Newbridge Credit Union, excluding the premises, to Permanent TSB. The Central Bank has published extensive information on its website setting out the details of the transfer, including the relevant background material and financial details. It is also examining a range of other material which remains subject to High Court confidentiality restrictions to ascertain whether any of this material can be published in due course.

As Minister for Finance, I agreed to the payment to Permanent TSB of a financial incentive of up to €53.9 million to support the transfer. This was on foot of a request from the Governor of the Central Bank. The incentive includes €23 million in cash upfront; €4.25 million for restructuring and integration costs; €2 million for other transferring liabilities; a maximum additional €24.7 million to cover additional costs resulting from all loans being written off with nothing recovered and a risk share on the transferring loans, whereby the State will absorb 50% of the losses where loans perform below their transfer value and 50% of the gains where they perform above the transfer value. If these loans were written off entirely with no recovery, this would result in an

additional €24.7 million total cost. The financial incentive provided in the Newbridge case is fully recoupable from the financial services sector over time in the form of a levy.

The Central Bank undertook a process which involved the examination of possible credit union combinations in line with the resolution options available. This examination resulted in an approach being made to a number of credit unions. Ultimately, however, no credit union considered that it was in its best interests to complete such a combination, even in the context of extensive taxpayer support. This partly reflected the exceptional nature of financial difficulties at Newbridge Credit Union and the relative scale of the credit union within the sector. The Central Bank also considered proposed solutions put forward by various interested parties but none proved feasible in addressing the problems or protecting members' savings. It was in the context of a possible liquidation that, with the support of the Central Bank, a request was made to Permanent TSB to undertake this transaction. I would like to express my thanks to Permanent TSB for its participation in this process, which has brought stability and certainty to the situation and specifically to the members and staff of Newbridge Credit Union and has provided an alternative to liquidation. The transfer of Newbridge Credit Union to Permanent TSB means that Newbridge Credit Union members can be assured that they can continue to operate their loan and deposit accounts as normal.

The bad practices in Newbridge Credit Union over many years can be illustrated in the following key lending statistics: an individual loan of €3.2 million, which was in excess of the Credit Union Act restriction of a maximum of 1.5% of the total assets; 52% of the loans exceeded five years duration as opposed to the maximum set out in the Credit Union Act of 20%; the average loan in Newbridge Credit Union was €17,281 as compared with the average credit union loan of €7,764; and there were 26 loans of an average value of €550,000, which were seriously distressed. These figures illustrate that Newbridge Credit Union was operating in a very different way from a normal credit union. The structure of some loans was more akin to development loans with bullet repayments as opposed to regular repayments.

The Central Bank has informed me that, based on data submitted by credit unions as at 30 September 2013, some 20 credit unions have reported regulatory reserves below the minimum requirement of 10% of assets. This gives rise to a capital shortfall of in the region of €11 million. The Central Bank is continuing to work through a portfolio of approximately 100 credit unions on a case by case basis. The programme of work to engage with such credit unions is informed by the following: levels of arrears, inadequate bad debt provisions, high fixed asset to total asset ratio and other supervisory concerns, including weak lending practices. The outcome of these engagements can include some or all of the following: governance changes, risk mitigation programmes, lending and other business restrictions and requirements for credit unions to seek capital support.

The funding required for Newbridge Credit Union is being provided by the resolution fund and is fully recoupable from the financial sector via a levy over time. The Government has made available €500 million to support the stability of the credit union movement. This amount is divided between two funds of €250 million each, one for resolution, which is being used in the Newbridge case, and an other which is for voluntary restructuring under the Credit Union Restructuring Board.

I emphasise that the Government recognises the important role of credit unions as a volunteer co-operative movement and the distinction between them and other types of financial institutions. The Government's priorities remain the protection of members^' savings, the financial stability of credit unions and the overall sector. I would like to remind credit union members that protection available to credit union members under the deposit guarantee scheme currently safeguards up to €100,000 per depositor per financial institution.

The Government is determined to support a strengthened and growing credit union movement and would encourage the movement to work with its stronger credit unions so they can provide a viable option for assisting weaker credit unions. In particular, the Government would like to highlight its support for the future return of a credit union to Newbridge.

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