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90 Credit Unions look at merger options

Thursday, March 27 14:20:51

Some 90 credit unions are exploring their merger options ahead of a 2015 funding deadline, according to the Credit Union Restructuring Board, ReBo, today.

It said today that, in advance of the launch of its Strategic Plan, credit unions are ready and willing to embrace restructuring that will support their financial stability and long term sustainability.

The plan incorporates Guidelines for the Operating Principles of ReBo which have been developed in consultation with the Minister for Finance. The Minister has laid a copy of the Guidelines for the Operating Principles and the Strategic Plan before each House of the Oireachtas.

According to Donal Coghlan, ReBo's Chief Executive, as at December 2013, there were 390 credit unions in Ireland with total assets of just under E14 billion.

"Taken in aggregate, the Credit Union Sector has a strong balance sheet and would meet all its regulatory financial targets if it were one single entity. However, it is an atomised structure, independently owned and run by its members and it is facing challenges. Income is under threat as the average loan to asset ratio continues to decline, operating costs now exceed loan interest income in approximately half of all credit unions and investment income is expected to fall as interest rates remain low. Achieving scale is a significant factor in addressing the current financial weakness in many credit unions - ReBo are there to facilitate this," he said.

"The work of ReBo will be achieved on a voluntary, incentivised and time-bound basis. Over the next two years ReBo will actively work with those credit unions that are willing to engage in the process of developing and implementing restructuring plans. These plans will not only address financial viability and governance structures, but more importantly, they will demonstrate how a merger will be in the best interests of members and how the merged entity will preserve and enhance the community presence. Each of the 50 projects we are involved in so far have these objectives," Mr Coghlan added. ReBo will assist credit unions with the preparation of restructuring plans and will oversee their implementation, either directly or by assisting in the funding of professional third party services. For credit unions that wish to partake in the restructuring process, this represents a unique and attractive opportunity to avail of practical and financial support for a limited period. As part of its commitment to restructuring, the Government has made E250 million available in the form of the Credit Union Fund, from which funds will be made available to meet the expenses of ReBo in discharging its functions. ReBo is required to make regulations for a levy payable by credit unions of half the total expenditure it incurs annually. This is consistent with the co-funding of ReBo by the movement as recommended by the Commission on Credit Unions.

The Strategic Plan sets out ReBo's vision for vibrant and sustainable credit unions that are credible, trustworthy providers of financial services to their members.

Mr Coughlan added that, in 2012, the report of the Commission on Credit Unions found that there were a number of significant challenges facing credit unions.

"These challenges continue to be a feature of the current landscape. Many credit unions are reliant on investment income to support costs, dividends and reserves. With ECB interest rates at an all-time low and forecast to remain low for the foreseeable future, the rate of return on investment income is expected to fall further compounding stresses. Credit unions are experiencing upward cost pressure, particularly in the areas of compliance as a result of the enactment of the 2012 Act. In addition, some are encountering challenges in recruiting and retaining sufficient numbers of volunteers as they seek to comply with the new Fitness and Probity and governance requirements. The potential impact of the Personal Insolvency Legislation and proposals around tiered regulation remains to be seen".