Solvency Problems at Irish Credit Unions

At least 20 Credit Unions in Ireland have  “serious solvency issues”  according to the Central Bank’s financial institutions supervisor Jonathan McMahon. These 20 have high levels of arrears, and they are being monitored closely.  The problems could be more widespread – but the regulator does  not have the resources to determine the full scale of problems across all 414 credit unions in Ireland.

Credit Unions were only bought into the government deposit guarantee  scheme in September 2008 – so all credit union deposits up to €100k are covered under that scheme.

Overall – about 13.5 %  of  credit union loans  had not been repaid for 10 weeks or longer, compared with 6% two years ago. Many loans  have also been rescheduled to give struggling borrowers more time to repay.

The regulator found that that as many as 90% of credit unions had not provided sufficiently on provisions for bad loans, he said.

A proposal under Section 35 in the new Central Bank Bill would force credit unions to set aside more funds to cover possible losses on rescheduled loans – up to 20 per cent of a loan’s value.

It is  expected that many problems, including loan arrears will to crystallise at credit unions by the end of their financial year in September.