Pauline O'Reilly (Green Party) | Oireachtas source

I welcome the Minister of State. Public banking is core to Green Party policy. The Minister of State has shown a commitment to looking at this. Credit unions are central to public banking. The reason public banking is key for us is not just because of the co-operative model. As others have said, it is also because of what it brings to a community. People feel that they have a stake in it and that it is their bank. This is what makes the difference. People trust it. We have all had credit union accounts. It meant something to us and we knew if we saved we could get something in return for it. We knew we were supporting others at the same time.

The reason this is before the Seanad is the call from the Minister of State for credit unions to have a greater role in the mortgage market now that KBC has left. I acknowledge this. The Minister of State is stepping up to the plate. He has already outlined the number of engagements he has had. We have known for quite some time the difficulties credit unions are facing. It is important to point out their function, particularly with regard to the SME sector. Credit unions fulfil a function that banks and other credit institutions do not fulfil and cannot fulfil. A lack of credit has continually been a barrier to growth in many micro, small and medium enterprises. According to the 2019 Indecon report about public banking in Ireland, despite the overall levels of new lending there has been a decline in the application rates for bank finance by the SME sector. It accounted for 35% of applications for bank finance in March 2014. This had declined to 20% by September 2018. This is alarming given the reliance in this country on the SME sector. I was happy to see that since then, the new lending regulations introduced by the Central Bank have increased credit unions' capacity to provide up to €1.1 billion.This led to an 18% increase year on year in June 2021. However, it should only be cautiously welcomed, because there was a fall in lending in June 2020.

Another aspect that the Minister of State mentioned, and one that is very welcome, is the credit unions approved housing body fund, which was approved by the Central Bank and announced in September. It is really positive. I hope that it helps to succeed in delivering housing. I think Senator Casey made an excellent point when he suggested that the Government should look into lending to local authorities. The ability of credit unions to lend in other cases is still very restricted. This needs to open up to allow credit unions to prosper.

Quite apart from the credit unions, SMEs are the backbone not just of the Irish economy, but of Irish society. They employ over 1 million people in this country, representing over two thirds of the total employed in the enterprise sector. Credit unions come to the fore regarding the SME sector. There is still a huge unmet need in lending to SMEs in Ireland. The credit unions, perhaps as part of a wider public banking model, could form the basis of this. The difficulty that credit unions have faced around mortgages predominantly relates to the minimum reserve requirements. We have a huge glut of savings at the moment, with the Central Statistics Office reporting that €31 billion was saved by households in 2020 alone. Much of this is being saved in credit unions, which is great. However, a problem arises when the credit unions cannot actually lend this out due to lending restrictions.

There are new opportunities coming up that credit unions could be part of, particularly regarding the low-cost financing for retrofitting. Going back to the issue of the minimum reserve requirement, it makes it tough for credit unions to expand their lending. It is currently 10%, which is much higher than in other similar jurisdictions and much higher than banks in Ireland. It does not make sense to treat small credit unions the same way as larger credit unions, the largest of which has around €500 million in assets. A report released by credit unions recently found that the average reserve ratio was higher than 10%. It is actually closer to 17%. It is a crude measure to impose this one-size-fits-all approach to credit unions, when the equivalent rules for banks are based on risk. The principle should extend to credit unions as well. Perhaps the Government will consider changing that ratio.

In some ways, credit unions are not in competition with traditional banks, but in other ways, they are direct competitors. That is welcome, because we need that level of competition. The co-operative model does not mean that credit unions are stuck in the past. We have seen recently that innovation is possible without having to compromise on ethos. It was announced several months ago that hundreds of thousands of credit union members will have access to current accounts and debit cards after 16 credit unions came together to develop the offering. They have been able to offer this at a lower monthly fee than banks. It comes at a time when Irish banks have the highest mortgage interest rates in the eurozone. More competition from credit unions would bring this down.

This is coming as credit unions are banding together, which the Minister of State mentioned in his opening statement, through shared service entities, to provide a greater offering for their members. It needs to be encouraged, not restricted. The Irish League of Credit Unions has expressed concern at the exclusion by the Central Bank of many community-based credit unions from offering debit card services. It is really disappointing. All of those things together, including the kind of services that will attract people to credit unions, will help them grow. Ultimately, they will create better communities where people can feel welcome.