Seán Power (Kildare South, Fianna Fail)

I am dealing with this matter on behalf of the Minister for Finance. Under section 35 of the Credit Union Act 1997, 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, ILCU, is proposing a significant increase in the lending limits to 40% for five-year loans and 25% for ten-year loans. The ILCU's position is that the current limits on longer-term lending are affecting the competitiveness of credit union lending, as credit unions are not in a position to compete with the banking sector in one of the more demand-driven areas of the overall lending market.

The registrar of credit unions in the Financial Regulator's office 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, in that respect, points out that loan arrears and bad debt provisions in the movement are rising. In his view, the capacity of credit unions as a whole to manage the inherent risks arising from longer-term lending is not sufficiently developed to permit such a substantial increase in long-term lending.

The Minister for Finance recognises the concerns of the credit union movement on the current constraints on longer-term lending in circumstances that an increasing share of the savings of credit union members are invested rather than lent out. In the Minister's address to the consultative general meeting of the Irish League of Credit Unions in April 2006, 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. However, in considering any change to the lending limits the Minister must ensure that it does not lead to any deterioration in the overall risk profile of credit union lending. Ultimately, the overriding objective is to ensure the funds entrusted to credit unions by members are safeguarded.

Given the divergence of views between credit unions and the registrar on this important issue, it was 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 and protecting members' savings. Consequently, the Minister referred the matter to the expert statutory advisory body on credit union matters, the Credit Union Advisory Committee, CUAC, requesting its advice as to whether a review of the current limits on longer-term lending by credit unions should be initiated. The CUAC was provided with a detailed statement of the league's case and was also informed of the registrar's views regarding the risks of increased long-term lending by credit unions.

The advisory committee is acutely conscious of the importance of this issue to the credit union movement and the recommendation of the committee is expected shortly.