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ILCU Statement on Central Bank report on “Financial Conditions of Credit Unions, 2020: I Issue 7, De

Posted on: 17 Dec 2020

The Irish League of Credit Unions notes today’s publication of the Central Bank’s “Financial Conditions of Credit Unions, 2020:1”. In particular we welcome the acknowledgement in the report that “credit unions have been effective in maintaining continuity of services for their members” during the pandemic.

We also welcome the recognition that “credit unions came into this crisis with a strong reserves and liquidity position. Across the sector, reserve and liquidity levels have remained relatively stable so far during the pandemic period”. ILCU credit unions have built up substantial capital reserves and provisions for loan losses, and are in a good position to absorb inevitable loan losses, albeit arrears and loan losses have remained very low so far.

As the Central Bank outlined, our new annual lending reached a 4-year high with €2.6 billion in new loans advanced for the year to 30 September 2019. With the effects of the pandemic, the level of new lending was down to €2.3 billion in new loans advanced for the year to 30 September 2020. While this drop in lending is a concern, and not unexpected, the ILCU figures show there has been some recovery in new lending for the quarter to 30 September 2020. It is vital that this recovery in new lending is maintained in 2021.

The Central Bank report notes that the “sector average loan arrears rose slightly from 4.6% to 4.8% over the year to 30 September 2020”.  Thankfully, coming into the crisis, ILCU credit unions had successfully managed down arrears to very low levels with arrears falling for 32 quarters in a row coming into this crisis. ILCU figures show that arrears did climb slightly, in the quarter to March and June, but dropped slightly in the quarter to September 2020. Our credit unions are very closely monitoring arrears and are adjusting their loan provisions accordingly. 

ILCU credit unions increased their loan provisions by 10% to €326 million in the year to September 2020. This €326 million in loan provisions is in addition to €2.59 billion set aside in capital reserves. ILCU credit unions had €917 million in buffer capital above the required 10% of assets level.

The hoped for recovery in 2021 is dependent on a lot of factors, such as ongoing management of the virus, and whether restrictions are further lifted in 2021 and more people return to work. The arrival of the vaccine is a positive development, but the roll out of the vaccine will take time. Brexit will certainly have a negative impact also, especially in a “hard Brexit” scenario.

Credit unions are in a good position to rebuild their lending as the hoped for economic recovery takes hold in 2021, and the ILCU have a number of lending initiatives in place to help credit unions grow their loan books and service the recovery in demand for lending.