Michael McGrath (Cork South Central, Fianna Fail)
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4. To ask the Minister for Finance if he will provide an update on the assessment of the financial health of the credit union sector and on the number and extent of regulatory interventions and consolidations within the sector thus far and in the pipeline; and if he is satisfied that everything possible is being done to ensure the vital and unique role of the credit union movement is protected. [16461/14]

Michael McGrath (Cork South Central, Fianna Fail)
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I am sure the Minister will agree that the credit union sector is vital to the economy and the country and provides an important counter-weight for a banking sector that is still struggling to find its feet. Key issues affect the credit union sector as it is going through a transformation phase. There is much consolidation and credit unions are struggling under onerous lending restrictions. The Credit Union Restructuring Board, ReBo, is doing its work in restructuring credit unions. I hope the Minister can give the House an update on the financial health of the sector as per the latest Central Bank assessment.

Michael Noonan (Limerick City, Fine Gael)
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The credit union movement is a very important sector and I would like to give the Deputy the update he seeks. There were 388 credit unions at the end of December 2013 with total assets of €13.9 billion. Total members' savings for 2013 amounted to €11.6 billion. Loans to members have decreased by almost 13 per cent from December 2012 and currently stand at €4.3 billion, with the sector average loan-to-asset ratio at 32%. Approximately €778 million in total provisions for bad debts were reported for 2013, compared with arrears in the sector of approximately €756 million. These figures show that just over 100% of arrears are currently being provided for. A total of 18 credit unions had a reserve ratio less than the required 10%, with a combined deficit of €11 million.

The Commission on Credit Unions recommended a range of measures to support the credit union sector.  A key recommendation was that the sector be restructured on a voluntary, incentivised and time-bound basis. The Government contributed €250 million to the credit union fund to support this process, which is being overseen and facilitated by the Credit Union Restructuring Board, ReBo. ReBo has assisted in two credit union mergers recently - the merger of Balbriggan, Skerries and Donabate credit unions to become the Progressive Credit Union, and the merger of Baltinglass and Castledermot credit unions. ReBo has engaged with more than 300 of the 388 credit unions to identify their willingness to participate in the restructuring process. Currently, ReBo is assisting 96 credit unions in 47 projects. ReBo is working to the timetable set out in the commission's report and is expected to complete its work by the end of 2015.   

The commission also recommended that a statutory stabilisation fund be established to support credit unions that are under-capitalised but are otherwise viable. The statutory basis for stabilisation is in place and the Department of Finance has published a consultation paper on the introduction of the stabilisation levy of €5 million per year towards a total funding need of €30 million.  At the request of credit union representatives, this consultation process has been extended until the end of May.

Additional information not given on the floor of the House

The Credit Union and Co-operation with Overseas Regulators Act 2012 implements more than 60 of the Commission on Credit Unions' recommendations, including those related to governance and regulatory reform.  The Central Bank is currently consulting the sector on the introduction of a tiered regulatory approach under the Act.

In terms of regulatory interventions, the Central Bank has advised me that about 58% of all credit unions are subject to lending restrictions. Of the credit unions with lending restrictions, more than 69% can lend €20,000 or more to an individual member. 

I am satisfied that these measures, together with governance and regulatory changes introduced on foot of the commission report, will underpin a stable credit union sector into the future.

Michael McGrath (Cork South Central, Fianna Fail)
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The figures the Minister outlined highlight that what we have in the credit union movement is a healthy overall sector, but there are a number of credit unions with serious financial difficulties. It is a question of bringing about the restructuring that is required in order that the weaker credit unions can be supported by the stronger credit unions, and to have such consolidation ideally on a voluntary basis. One of the issues to the fore is the lending restrictions that are in place. The Minister's figures underline the point that the loan-to-asset ratio is 32%. The credit unions to which I have spoken have buckets of cash but they are simply not allowed to lend it at present because they are working under very onerous lending restrictions imposed by the regulator under the Central Bank, and that is causing a very real problem, not only for the credit unions - because they cannot put members' savings to work - but for the economy generally, because credit unions have always been the option of choice for many consumers who do not have a relationship with the banks. I am afraid we will lose that connection, which has historically been the bedrock of support for credit unions in communities around the country. In tandem with the restructuring, I would like to see the Central Bank ease off on the very heavy lending restrictions that are currently being imposed.

Michael Noonan (Limerick City, Fine Gael)
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The imposition of lending restrictions is the responsibility of the Registrar of Credit Unions, who is the independent regulator of credit unions at the Central Bank. Within her independent regulatory discretion, the registrar acts to support the prudential soundness of individual credit unions to maintain sector stability and to protect the savings of credit union members.

I have been informed that it has been necessary to put lending restrictions in place in individual credit unions where there are regulatory concerns about their operation and the resultant risk to members' savings. The criteria assessed to determine the imposition of lending restrictions include, but are not limited to, prudential returns, which are unaudited returns, submitted by the RCU; financial ratios which cover levels of arrears and provision coverage; and the governance framework within the credit union. Decisions on regulatory restrictions, which are imposed in the form of directions under the Act, are made by the registrar. Other regulatory restrictions may be imposed as part of an ongoing supervisory engagement. These may be dealt with by the registrar but they may also be dealt with by a member of the management team, depending on the issue.

Michael McGrath (Cork South Central, Fianna Fail)
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Another issue I wish to raise with regard to the sector is the Central Bank's initiative to deal with multiple debt scenarios. The credit union representatives have withdrawn from the Central Bank initiative because of what they regard as an imbalance in the treatment of secured and unsecured lenders. In their view it vests inappropriate control in the banks and lacks fairness and transparency. In light of the very slow start, to say the least, the Insolvency Service of Ireland has made on secured and unsecured debt, does the Minister agree this issue needs to be resolved because ultimately it is in everybody's interests if agreements can be reached without recourse to the statutory insolvency procedures? It is regrettable the credit union representatives have felt the need to withdraw from the Central Bank's initiative.

Michael Noonan (Limerick City, Fine Gael)
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I understand the Central Bank's three-month multi-debt framework pilot, which operated during the final quarter of 2013, has now run its course. The pilot helped to highlight factors which assist, as well as issues which prevent, borrowers with multiple debts from finding mutually acceptable informal solutions with their lenders. Any further initiatives arising from the pilot framework findings are a matter for the Central Bank. The Central Bank facilitated the scheme in co-operation with the lenders and the operator, StepChange. Most lenders, including some credit unions, participated in the sample cases. The pilot scheme has demonstrated to lenders the variety of solutions which can be applied to debtors in distressed debt situations. Of course statutory insolvency frameworks which deal with secured and unsecured debt are in place and available to any insolvent debtor to propose an arrangement for his or her creditors to restore him or her to solvency.

The information which the Central Bank gleaned was of benefit. Like Deputy McGrath I would like to see more progress being made under the Personal Insolvency Act because it was major legislation processed through the House over a lengthy period of time.