Written answers

Tuesday, 6 November 2018

Department of Finance

Credit Union Lending

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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199. To ask the Minister for Finance if he will report on the necessary easing of Central Bank restrictions on the operation of credit unions and on a role for the credit unions to provide mortgage finance to the locked out generation of home buyers; and if he will make a statement on the matter. [45327/18]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I welcome the publication of the Central Bank’s Consultation on Potential Changes to the Lending Framework for Credit Unions (CP125). Reviewing these Lending Regulations is an important matter for the Sector and one for which I have previously outlined my strong support.

A comprehensive review of the Credit Union Lending Regulations was one of the recommendations from the Credit Union Advisory Committee (CUAC) in its “Review of Implementation of the Recommendations in the Commission on Credit Unions Report” published in June 2016. On foot of this report, an Implementation Group was set up in order to progress the CUAC’s recommendations. This group is chaired by my Department and is comprised of one member from each of the credit union representative bodies – the Irish League of Credit Unions, the Credit Union Development Association, the Credit Union Managers’ Association and the National Supervisors Forum – and a member from the Central Bank.

In November 2017 the Implementation Group completed a scoping paper regarding possible amendments to the Lending Regulations. The paper contained a number of proposals for consideration in the Central Bank review of the Credit Union Lending Framework, which could provide for a material increase in long-term lending for those credit unions with the capability to do so. Following the submission of this paper to the Central Bank, I wrote to Governor Lane outlining my strong support for this very important matter being progressed in 2018.

In March 2018 the Central Bank informed Credit Unions that a review of credit union lending limits had commenced, noting that the matter had been highlighted for review in various foras, including through the Implementation Group. To help inform their review, and in order to get individual credit union input, the Central Bank issued a longer term lending questionnaire to Credit Unions in April 2018. The Consultation Paper on Potential Changes to the Lending Framework for Credit Unions (CP125) was published on 24 October.

The proposals contained in CP125 include the removal of the existing lending maturity limits which cap the percentage of credit union lending which may be outstanding for periods of greater than 5 and 10 years and the introduction of concentration limits, on a tiered basis, for home mortgage and commercial loans expressed as a percentage of total assets. The proposed concentration limits would permit all credit unions to undertake combined house and commercial lending of up to 7.5% of total assets, but with a limit of 5% of total assets for either one of the categories.

The consultation paper also proposes that an increased combined concentration limit of 15% of total assets would be available to those credit unions who can demonstrate that they have strong core foundations to undertake additional house and commercial lending including the necessary financial strength, skills, expertise, operational and risk management capability. Prior approval from the Central Bank would be required in order for a credit union to avail of this increased combined concentration limit.

Based on the data supplied in the Consultation Paper, the proposals would allow in the first instance a sectorial capacity of €861m for house loans. To put this figure in context, as per June 2018 Prudential Returns, there is approximately €165m of house loans currently outstanding across the sector. This capacity would increase as Credit Unions are approved for the higher concentration limit. In the case where all Credit Unions with assets greater than €100m were approved for the higher limit, sector capacity could increase to a maximum of c. €1.8bn.

It is important that credit unions who wish to undertake increased house and commercial lending understand the risks involved; and in accordance with section 35(2) of Credit Union Act 1997 the ability of the member to repay the loan should be a primary consideration in the underwriting process for the credit union.

Credit Unions, their representative bodies, and other stakeholders will now have an opportunity to analyse the proposals put forward in CP125 and engage in the Consultation by submitting their views to the Central Bank. The consultation period is open for submissions until 9 January 2019. My officials and I will review the proposed amendments, liaise with the Central Bank and input into the statutory consultation process when it arises.

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