Michael McGrath (Cork South Central, Fianna Fail)
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Question 124: To ask the Minister for Finance if he will respond to the issues raised in correspondence (details supplied) by an organisation in County Cork. [19207/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The concerns outlined in the correspondence enclosed by the Deputy refer to the amendment to Section 35 of the Credit Union Act 1997 contained in the Central Bank Reform Bill 2010 which is receiving its second stage reading in Dáil Éireann at present. Section 35 imposes limits on credit unions in relation to longer-term lending. The restrictions contained in Section 35 of the Credit Union Act 1997 are an important asset and liability instrument which has protected the financial stability of the credit union movement over many years. The need for such a mechanism will be addressed in the forthcoming Strategic Review of the Credit Union Sector in Ireland but in the immediate future it is necessary to address ongoing issues with regard to Section 35 now. The matter was considered by my Department following consultation with the two credit union representative bodies - the Irish League of Credit Unions (ILCU) and the Credit Union Development Association (CUDA) - and with the Registrar of Credit Unions. I have decided that, in addition to extending from 20% to 30% the proportion of a credit union loan book that may be in respect of loans over five years, it is necessary now to give the Registrar of Credit Unions powers to require credit unions to have appropriate liquidity, provisioning and accounting requirements in place.

The Registrar of Credit Unions has advised the credit union representative bodies that he will take a balanced and proportionate approach on the implementation of the Section 35 requirements. There will also be transitional arrangements operated by the Registrar. In this regard, he has provided an outline to ILCU and CUDA of the type of transitional arrangements and clarifications that will be issued at the time of implementation. These cover matters such as timing of reporting, transitional provisions for minimum provisioning requirements, use of trial periods for rescheduled loans, circumstances where a full provision may not be required on a rescheduled loan provided that the loan is still performing and circumstances under which the level of provision held on a rescheduled loan can be reviewed. The transitional arrangements will help ease the position for credit unions up to the close of the financial year ending in September 2011. They will also allow time for credit unions to adjust to the new regime. The responsibility for provisioning for bad and doubtful debts remains with the board of directors of each credit union who must ensure that, in accordance with the provisions of the Credit Union Act 1997, the annual accounts give a true and fair view of the financial position of the credit union.

There is a balance to be struck between meeting members' needs to reschedule loans and ensuring the stability of the credit union sector overall. It is in the interests of all credit unions that the stability of the sector is safeguarded. I am satisfied that the proposals being brought forward in connection with the Central Bank Reform Bill 2010 are appropriate and will achieve this fundamental aim.