Strict lending rules limit credit unions to just 3% of the mortgage market
Posted on: 10 Mar 2022
Strict lending rules limit credit unions to just 3% of the mortgage market and less than 10% of the small business (SME) loan market
Credit unions have nearly €15 billion of surplus funds but are severely restricted in providing SME business loans and mortgages, despite housing challenges
Lending restrictions effectively take money out of the economy, SME, business and mortgage markets at a time when we need it circulating to support housing supply, first-time buyers, and to support businesses recovering from the impact of Covid
Ahead of a meeting with Minister Fleming this week, ILCU calls on Government to honour commitment in Programme for Government to ‘enable the Credit Union movement to grow as a key provider of community banking in the country’
The ILCU calls for the establishment of a Policy Taskforce with active participation among key stakeholders including credit union representative bodies, the Central Bank, and the Department of Finance, to ensure policy is not developed in a vacuum.
The Irish League of Credit Unions (ILCU) is once again calling for an urgent, root-and-branch review of the regulatory restrictions imposed on credit unions, who have over €15 billion of surplus funds. A significant portion of these funds could potentially be used to:
provide competition in the mortgage market
support first-time buyers
support housing supply
support small businesses through SME lending as they recover from the impact of Covid.
Under the current lending limits set by the Central Bank, credit unions can only offer just 3% of mortgage loans and less than 10% of SME loans in the market. In comparison, Ireland’s three pillar banks share 70% of the mortgage market with the remainder primarily held by KBC and Ulster Bank, which are exiting the market.
The SME lending market is similarly highly concentrated with the top three banks holding 90% of the market share.
“Credit unions cannot reach their potential and become a key provider of community banking, as committed to by the Government in the Programme for Government, with such restrictive lending limits,” said David Malone, Deputy CEO, ILCU.
“At a time when the banking duopoly is not subject to the restrictive measures placed on credit unions and competing in the mortgage and SME market, it is time for the Government to level the playing field and allow credit unions to offer Irish consumers and businesses an alternative banking solution.”
“Right now, when we need money circulating in the economy to support first-time buyers, housing supply, and support business recovery from Covid, restrictions on credit unions are effectively taking money out of circulation when it’s needed most.”
The ILCU is part of a global system of credit unions. In the more mature economies of the USA, Canada, and Australia, credit union systems operate on a fairer and more level playing field. Regulatory rules in these countries mean that credit unions are offering up to 10 times as many mortgages and business loans than their Irish counterparts.
The call for an urgent review comes following recent remarks by Seán Fleming, the Minister responsible for Financial Services, Credit Unions and Insurance, who said that he would like to see the credit union sector ‘filling the void’ in the lending market left following the departure of Ulster Bank and KBC.
However, the ILCU believes that the full potential of the credit union movement in the financial services sector can only be fully unlocked if and when there is a level playing field and policy is fair and inclusive across all financial institutions.
The ILCU welcomes the Minister’s comments in the Seanad that his policy review will seek to include proposals to support regulatory engagement while respecting the need for regulatory independence.
In this context, ahead of a meeting with Minister Fleming this week, at which the detail of his legislative framework policy review document and proposals are to be laid out, the ILCU is also seeking the establishment of a Policy Taskforce, involving the Department of Finance, the Central Bank, and the credit union representative bodies.
The establishment of such a taskforce would ensure that policy development is fully informed, fit for purpose, and sustainable, and support the rollout of a credit union-led community banking model for Ireland. Without such a forum involving key stakeholders at the policy initiation stage, Irish credit union policy will continue to be developed in a vacuum.
David Malone, Deputy CEO of the ILCU, said:
“We’re asking for a level playing field and for the chance to compete in a meaningful way in the market. With a network of credit unions throughout the country, we have the capacity, resources, and, importantly, the funds to support many people to buy homes, support local businesses, and provide the full range of banking services to communities. Regulatory constraints, particularly lending limits, are severely limiting our credit unions’ potential, and it is Irish consumers, businesses, and prospective homeowners who are losing out.
“Internationally, we’re outliers. The regulatory environment in which international peers operate is competitive and acts as an enabler for business and supports a competitive financial services market. The regulatory roadblocks imposed on Irish credit unions are archaic and outdated. Our policy lags behind.
“At a time when retail banking in Ireland is undergoing fundamental change, and when there is greater demand than ever for the community banking role that credit unions can provide, an urgent review of the regulatory constraints on credit unions is now required, with a view to unlocking their potential to enable them to compete on a level playing field. We see the establishment of a credit union Policy Taskforce, which we fully engage with, as the appropriate body to carry out this review, ensuring policy is not developed in a vacuum.”