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CREDIT unions have seen a massive increase in member savings since the Covid crisis began.
Avings levels are now at a five-year high, but the sharp rise in savings, at a time when demand for loans is low, is putting great pressure on the sector.
Members have collectively deposited an additional € 1 billion in savings with member-owned institutions.
Average member savings have increased by 7%, from 4,400 to 4,700 euros in the year to September, the central bank said in its latest review of the state’s 229 commercial credit unions. This is despite a growing list of credit unions imposing limits as low as € 10,000 on members’ savings in an attempt to stem the flow of funds to them.
But loan levels have continued to be subdued, meaning credit unions are struggling to make money.
Weak demand for loans means that credit unions are struggling to receive additional funds.
If funds are not loaned, most of the money ends up in traditional banks that charge negative interest rates to credit unions.
And for every € 100 extra in savings, € 10 is put into the reserves of a credit union.
The first lockdown saw loan levels drop.
They have recovered a bit, but are still below where regulators said is healthy, said the credit union registrar at the central bank.
Low lending levels, coupled with threats from Covid and Brexit, are putting a question mark on the future of some of the credit unions, warned credit union registrar Patrick Casey.
He said in the latest sector review: “Overall, while the sector has shown some degree of resilience in 2020, the economic outlook is uncertain with Covid-19 and the impacts of Brexit possibly not yet fully realized.
“A continuation of the trends identified in this report could face many credit unions facing sustainability challenges in the medium term.”
He called on the boards of directors of credit unions to “focus on the risks that arise from the continuing imbalance between savings and loans.”
The regulator said the total value of outstanding loans fell marginally to € 5.09 billion in the year to last September.
Average loan delinquency increased slightly from 4.6% to 4.8% during the same period.
The total value of members’ savings reached a five-year high of € 16.3 billion in September. The Central Bank report analyzes data on the financial performance of the sector over the last five years.
There are now 229 commercial credit unions, as mergers have meant that the total number in the state fell from 343 in the last five years.
Credit unions were praised in the review for their effectiveness in maintaining continuity of services for their members.
The Irish League of Credit Unions, a representative body, said credit unions are in a good position to rebuild their loans as the expected economic recovery in 2021 takes hold.
Kevin Johnson of Credit Union Development Association, another representative body of the sector, said that credit unions that have digitized their marketing, membership and loan application processes have performed better during the pandemic.
Some of them saw little or no reduction in overall loan volume.
Online editors
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