Brendan Smith (Cavan-Monaghan, Fianna Fail)
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245. To ask the Minister for Finance his plans to enable credit unions to provide loans for social housing, SMEs and mortgages; and if he will make a statement on the matter. [19566/17]

Michael Noonan (Limerick City, Fine Gael)
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I am pleased that the credit union sector is considering various proposals to increase its income and develop its business model. My Department has received a number of such proposals from both the Irish League of Credit Unions (ILCU) and the Credit Union Development Association (CUDA). Proposals from both representative bodies, in relation to the funding of social housing, are at various stages of development. While the Department of Housing, Planning, Community and Local Government is the Department primarily responsible for the formulation and implementation of policy and for the preparation of legislation in relation to housing, any such proposal would require approval of the Registrar of Credit Unions at the Central Bank before it could be implemented.

Social Housing Funding

The Central Bank has informed me that it has received information regarding proposals for credit unions to provide funding for social housing and is currently engaging with the sector on those proposals. It further stated that while it does not comment on specific proposals, such investments could be facilitated by future regulations made by the Central Bank, where appropriate. The Central Bank also stated that it is willing to consider the type of regulations that would be required to facilitate such proposals. However, the Central Bank's key consideration in evaluating such proposals is its statutory mandate to ensure the protection of members' savings by credit unions and to ensure the wellbeing of the sector generally.

Officials from both my Department and the Department of Housing, Planning, Community and Local Government have met with the representative bodies on a number of occasions to examine how credit unions can assist in the area of social housing. Officials from both Departments have also met with the Central Bank. Separately, communication is ongoing between the Department of Housing, Planning, Community and Local Government and my Department.

On 1 January 2016, I commenced the final sections of the Credit Union and Co-operation with Overseas Regulators Act 2012 (2012 Act) following discussions with credit union representative bodies. Following commencement of the legislation, the Central Bank introduced the Credit Union Act 1997 (Regulatory Requirements) Regulations 2016, regarding a number of areas including savings, borrowing, lending, investments and liquidity.

Investment regulations made specific reference to section 43 of the Act and to further classes of investments in which a credit union may invest its funds. The regulations provide that investments in projects of a public nature include, but are not limited to, investments in social housing projects. The Central Bank are currently reviewing the investment regulations for credit unions and on completion of their review will undertake a public consultation in 2017.

Notwithstanding any potential changes that may be made to the regulations, the legislative requirement for credit unions to ensure investments do not involve undue risk to members' savings will remain the overriding factor which must inform all credit union investment decisions.

SME Lending

In relation to small and medium enterprises (SMEs), the Central Bank has informed me that credit unions are permitted to provide commercial loans to their members. Commercial loans are subject to concentration, maturity and large exposure limits as outlined in the 2016 Regulations. In addition, where a credit union is considering granting a commercial loan, a comprehensive business plan and detailed financial projections (supported by evidence based assumptions), appropriate for the scale and complexity of the loan, should be provided and in place before such a loan is granted. This should enable the credit union to ensure that it is satisfied that the borrowing business has the capacity to generate sufficient income to repay the commercial loan. The Central Bank has further informed me that lending to SMEs is a specialist form of lending that requires specific skills and expertise. In general, this type of lending is viewed as high risk which may not be appropriate for all credit unions.

Mortgages

Currently credit unions can and some do provide mortgages to members. These types of loans are subject to certain maturity limits contained in the 2016 Regulations. The 2016 Regulations set out the percentage of a credit union's loan book that can be outstanding for periods exceeding both five years and ten years, as well as limits on the maximum outstanding liability to an individual member. Under the 2016 Regulations credit unions continue to be allowed to lend up to 30% of their loan book over five years and up to 10% of their loan book over 10 years, subject to a maximum maturity of 25 years. In addition, credit unions can apply to the Central Bank for an extension to their longer term lending limits (up to 40% of their loan book over 5 years and up to 15% of their loan book over 10 years). Approval is subject to conditions set by the Central Bank. There are currently 12 credit unions approved to avail of increased longer term lending limits.

The Central Bank informs me that the December 2016 Prudential Return indicates that for the sector overall, total gross loans over 10 years amount to c. 2.7% of total loans in the credit union sector compared to the limit of 10% (and in some cases 15%).

The Central Bank has indicated that while it can see longer term lending, including mortgages, being part of a balanced portfolio of total lending, in their analyses, credit unions need to consider the impact of longer term lending on interest margins, return on assets and on balance sheet structure – the issue of funding longer term lending with short term funding is a challenge for the credit union business model. The Central Bank further informs me that consumer mortgage lending is an activity that has its own unique risk profile, and proposals to become involved in mortgage lending in a significant way must be supported by an evidenced based business case.

The Credit Union Advisory Committee's (CUAC) recent report makes a number of recommendations, one of which is to conduct a full review of lending limits and concentration limits. I have established an Implementation Group which to date has met on three occasions and is currently assessing each of CUAC's recommendations with a view to implementation as appropriate. Central to its work is ensuring a full examination of lending limits and concentration limits is carried out as recommended. I look forward to regular progress reports from the Implementation Group as these recommendations are developed and implemented.