Charlie O'Connor (Dublin South West, Fianna Fail)
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Question 144: To ask the Minister for Finance if his attention has been drawn to the concerns of credit unions (details supplied) in respect of sections 35A and B of the Central Bank Reform Bill; if he will confirm contacts he has had on the matter; and if he will make a statement on the matter. [22257/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I assume that the concerns of the credit unions, to which the details supplied by the Deputy refer, relate to amendments to Section 35 of the Credit Union Act 1997 contained in the Central Bank Reform Bill 2010.

Section 35 of the Credit Union Act 1997 imposes limits on credit unions in relation to longer-term lending. The restrictions contained in Section 35 are an important asset and liability instrument which has protected the financial stability of the credit union movement over many years. The matter was considered by my Department following extensive 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 apply to 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 will take a balanced and proportionate approach to the implementation of the new Section 35 requirements and has set out for the credit union representative groups transitional arrangements and clarifications on the implementation approach. The Registrar has already indicated that these include transitional arrangements for a 15% provisioning requirement up to 30 September 2011, trial periods, exceptions with regard to top-up loans and relaxation of the 100% provisioning requirement in respect of rescheduled loans which have missed two or more payments. The transitional arrangements as proposed by the Registrar will help to ease the position for credit unions in the current financial year and the next financial year ending in September 2011. They will also allow time for credit unions to adjust to the new regime.

The effect of the new provisions on credit unions will be closely monitored. I would also like to take this opportunity to comment on the requirements imposed by the Registrar of Credit Unions in relation to the holding of Regulatory Reserves by credit unions. Reserves enable credit unions to deal with future uncertainties and to act flexibly in adverse economic conditions. This is a separate requirement to the obligation on boards of credit unions to ensure that adequate provisions are made for bad and doubtful loans. I am advised that the Total Regulatory Reserve is comprised of the Statutory Reserve and, where relevant, an amount held in a non-distributable additional regulatory reserve account.

A minimum of 8 per cent of total assets must be held in the Statutory Reserve and the remaining 2 per cent may be held in the Statutory Reserve or additional regulatory reserve account. Financial institutions, including credit unions, are required to hold minimum levels of regulatory reserves as well as making adequate provisions for bad and doubtful debts. The economic environment in which we now operate places increased emphasis on the maintenance of adequate reserves and credit unions are expected to operate with a level of reserves above the minimum regulatory requirement and to comply with the requirements issued by the Registrar of Credit Unions.

As I have indicated previously, there is a balance to be struck between meeting members' needs to reschedule loans and ensuring the stability of the credit union sector overall. I am meeting the credit union representative bodies today. My message to them is that while the principle of the approach we are taking in the Bill must be adhered to, the Registrar and I are prepared to look at the scope for any further flexibility in relation to the transitional arrangements. It is in the interests of every credit union in the country that the stability of the sector is safeguarded. The proposals being brought forward in connection with the Bill will achieve this fundamental aim. Finally, if the Deputy wishes to provide further clarification of what he has in mind, I will seek to answer that part of his question which refers to contacts that I have had on the Section 35 issue.