Fidelma Healy Eames (Fine Gael) | Oireachtas source

I welcome the Minister of State. I wish to outline the rationale for a credit union bond and to ask the Minister for Finance to initiate negotiations towards introducing one. I know this is also an area of interest for the Minister of State.

I have visited many credit unions in Galway city and county, and in doing so have learned a considerable amount. I have come to the conclusion that the Government needs to look again at credit unions and open its mind to the potential for a win-win by working differently with credit unions. It should initiate negotiations with the Irish League of Credit Unions to produce a credit union bond.

I will outline the realities as I have learned them. Credit union loan books are shrinking and their main income is charging interest on money they lend. The opposite is happening with loan books shrinking and the investment pot is getting bigger. They then have to invest that money somewhere and are getting incredibly poor interest rates. Funds not loaned out are invested in bank deposits, Government bonds or other financial products at very low rates of between 0.5% and 1%.

Credit union funds were attractive to banks at one point because the banks did not need to hold them liquid. They were treated like fixed deposits until Basel III changed the status of credit union deposits so as to require banks to hold them liquid, therefore attracting less interest. A report published in May 2013 showed that because of Basel III, credit unions lost €58 million in deposit interest.

Credit unions are now transferring their funds out of Ireland into European banks. For example, Athenry Credit Union, a very successful credit union, now has funds invested in KBC in Belgium. Credit unions have lots of funds in Ireland at the moment but these could potentially leave the country. It is estimated that they have about €8 billion in deposits, of which about €2 billion is now invested outside Ireland. Investments are getting larger and loans are getting smaller. The loan-investment ratio is about 2:1 - in other words only half their pot of money is lent out in loans.

Credit unions would like to see a bond, guaranteed by the Government which complies with Central Bank regulations and offers an element of liquidity with a return better than we are receiving on the market. I ask the Minister of State to explain why this is happening. At the moment the Government borrows money, probably at about 3%, and the credit unions have €8 billion they could lend to the Government if they got a rate better than 0.5% to 1%. It seems like a no-brainer to me. I know liquidity needs to be built into that and that there need to be terms and conditions, but why is the Government not prepared to do business with the credit unions? In setting up a bond the Government could borrow money. While €8 billion will not meet its needs, it is not bad. We have narrowed our deficit greatly. If the Government offered credit unions 2% rather than the 1% they are getting, it could save itself 1.4% in interest rates.

I will give a specific example. In January 2014 the Government offered a ten-year bond at a rate of 3.4% and Athenry Credit Union bought €8 million worth of that bond. So there is a discrepancy here. This came to mind when I was visiting the credit unions at the time the flooding was taking place - an issue close to the Minister of State's heart. We know the bill for repairing the damage created by the flooding could be €300 million or even more. St. Anthony's and Claddagh Credit Union in Galway city was willing to lend this money to the Government. It trusts the Government which is great to hear. It would prefer to keep its money local and in Ireland if it was just able to get a slightly higher interest rate than it is getting.

Since then I have learned that credit unions are looking to the international banks. Why has the Government not entered into negotiations with the Irish League of Credit Unions which is open to do this? Will it do it?