Dinny McGinley (Donegal South West, Fine Gael) | Oireachtas source

I am deputising for the Minister for Finance who is engaged in the other House.

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. This action 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 €1.1 million lost. These would have included the savings of charities, schools and individuals. 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.

On foot of a request from the Governor of the Central Bank, the Minister for Finance agreed to the payment to Permanent TSB of a financial incentive of up to €53.9 million to support the transfer. This consists of €23 million in cash up front, €4.25 million for restructuring and integration costs, €2 million for other transferring liabilities and a maximum additional €24.7 million to cover additional costs resulting from all loans being written off with nothing recovered. A 50:50 risk-sharing agreement is in place where the resolution fund will absorb 50% of losses where loans perform below their transfer value and 50% of gains where loans perform above their transfer value. The financial incentive provided in the Newbridge case is fully recoupable from the financial services sector over time in the form of a levy.

In line with the resolution options available, the Central Bank undertook a process which involved the examination of possible credit union combinations. This resulted in an approach being made to several credit unions. Ultimately, however, no credit union considered it was in its best interests to complete such a combination, even in the context of extensive taxpayer support. This partly reflected the relative scale of Newbridge Credit Union in the sector and the exceptional nature of its financial difficulties. The Central Bank also considered proposed solutions put forward by various interested parties but none proved feasible.

It was in the context of a possible liquidation that the Department of Finance, with the support of the Central Bank, requested Permanent TSB to undertake this transaction. The participation of Permanent TSB, for which I express my thanks, has brought stability and certainty to the situation and specifically to the members and staff of Newbridge Credit Union, providing an alternative to liquidation. This transfer means that Newbridge Credit Union members can be assured they can continue to operate their loan and deposit accounts as normal.

The bad practice in Newbridge over many years can be illustrated in the following key lending statistics. There was 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. Up to 52% of the loans exceed the five-year 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 to the average credit union loan which is €7,764. There were 26 loans of an average value of €550,000, which were seriously distressed.

These statistics illustrate that Newbridge was very different from a normal credit union. The structure of many of these 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 in the region of €11 million in total. The Central Bank continues 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 levels of arrears; inadequate bad debt provisions; high fixed asset to total asset ratio; and other supervisory concerns including weak lending practices. The outcomes of these engagements can include governance changes; risk mitigation programmes; lending and other business restrictions; and requirements for credit unions to seek capital support.

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, another for voluntary restructuring under the Credit Union Restructuring Board. The funding required for Newbridge is fully recoupable from the financial sector via a levy over time.

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 sector overall. The Government is absolutely 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 supports the future return of a credit union to Newbridge.