John Perry (Sligo-North Leitrim, Fine Gael) | Oireachtas source

I apologise on behalf of the Minister for Finance, Deputy Noonan, who, regrettably, cannot be here today. He would like to confirm his view that the credit unions have an important role to play in providing credit in local communities around the country. He is supportive of safe, responsible lending by credit unions. He is very much aware of the issues currently facing the sector and thanks Deputy Connaughton for raising this important issue.

Credit unions have a separate regulatory framework to that which applies to banks and are regulated and supervised under a dedicated Act, the Credit Union Act 1997. The Registry of Credit Unions at the Central Bank is responsible for the registration, regulation and supervision of credit unions. In recognition of the unique nature of credit unions, a statutory position of registrar of credit unions was explicitly created within the Central Bank of Ireland to assume responsibility for the regulation of credit unions.

The Commission on Credit Unions made a number of recommendations in its report regarding the strengthening of the regulatory framework for credit unions, including more effective governance and regulatory requirements. Many of these recommendations have been reflected in the Credit Union and Co-operation with Overseas Regulators Act 2012.

Acting as the independent regulator, the registrar of credit unions has applied lending restrictions to some credit unions. The Minister has been informed that these restrictions are viewed as short term in the majority of cases and are imposed as a means of allowing a credit union to address identified concerns as quickly as possible. Where lending restrictions are imposed, they tend to take the form of a restriction on individual loan size or on commercial lending activity and, in some cases, a limit on the total lending permitted each month.

At this time fewer than 10% of all credit unions have a restriction in place which limits the total amount of lending within the month, while close to 40% of all credit unions have a restriction on commercial lending activity. Currently, the average loan rate in the sector is just over €6,000 and about a dozen individual credit unions have lending restrictions that limit the amount loaned to less than €10,000. This ensures that the vast majority of credit unions can continue to make loans significantly greater than the average loan for the sector.

Section 35(2) of the Credit Union Act 1997 permits a credit union to have up to 30% of its loan book outstanding for more than five years and up to 10% of its loan book outstanding for more than ten years. Based on the most recent information provided by credit unions to the registrar of credit unions in the December 2013 quarterly prudential returns, average lending over five years as a percentage of gross loans was some 11%, while average lending over ten years as a percentage of gross loans was about 2%. These figures indicate that, in general, credit unions are currently well within the limits set down in the 1997 Act.

The section 35 stipulations require that a credit union must not approve further agreements for additional credit where an existing loan has been rescheduled unless a member's ability to repay all credit owed and the proposed additional credit has been clearly established. Where such circumstances have been established, a credit union may grant additional credit to a member with a rescheduled loan where that rescheduled loan has performed in accordance with the new terms for an appropriate period, in most cases not less than one year.

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