The Central Bank has published a consultation paper proposing new raised lending concentration limits for credit unions that potentially allows them to undertake more longerterm
lending, like mortgages.
Currently, credit unions are limited to 10% of gross loans for 10 year or longer maturities, though may be increased to 15% where approved by the Central Bank. The credit unions had total assets of €17.2bn last March, with loans of €4.6bn, with only c.€163m of 10+ year loans (mortgage and commercial). The current lending limits facilitate c.€0.45bn of sector loans that could have a maturity over 10 years.
The proposed amendments call for the removal of the existing lending maturity limits which cap the percentage of loans which may be greater than 5 or 10 years outstanding; introduction of concentration limits, on a tiered basis for home mortgages and commercial loans expressed as a % of assets; and clarification of the scope and parameters for commercial lending.
The Central Bank is proposing a combined house loan and commercial loan concentration limit of 7.5% of total assets, though within this, no more than 5% of total assets can be either mortgages or commercial loans. For those with financial capacity, some credit unions could go to a combined 15% of total assets across home loans and commercial loans. There will be transitional arrangements and the credit unions will not be able to do longer than 25-year loans.
Running some back of the envelope numbers and bearing in mind the proposed 7.5% and 5% splits and the possible maximum 15% limit of assets, then Goodbody Stockbrokers estimate credit unions could potentially have the capacity to increase the volume of home loans on the balance sheet (if assumed static) from c.€150m to c.€1.7bn – though not all credit unions will have the financial capacity, so it could be assumed closer to €1.5bn.
According to Goodbody Stockbrokers, "Assuming a prudent timeline to getting to that target, let say it takes 5 years to get to that balance sheet, then this would imply that credit unions could account for c.2.3% of our estimated gross mortgage lending over the next 5 years (c.€66bn). We would also note the recent comments from the credit union movement that interest rates will be c.4% variable, which is outside many of the rates currently on offer in the marketplace. So credit unions are likely to be another player in the market, but potentially a more limited impact than might be initially feared by investors."