# SBP: Many CU's Now Giving 0% to Savers



## Lightning (8 Mar 2009)

According to an article on Page 12 of today's Sunday Business Post over 25% (up from 10% last December) of CU's are now giving zero percent return on their savings products. I hope this increased highlighting by the media of the low/zero returns savers earn from the CU's might encourage more savers to shop around.



> one in four credit unions is running at a loss, and will not be able to pay any dividend (return to savers) this year



A further 20% ... 





> one-fifth did not report on investment losses to the regulator



The SBP have also stated in the same article today that ...



> two of the largest state's credit unions are known to be experiencing runs, as savers have lost confidence



Whilst this claim is worrying for the CU's themselves it is good to see that not all CU's savers are tolerating zero percent returns on their savings.


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## D8Lady (8 Mar 2009)

Our local CU is paying 1.5% on shares plus 2% rebate on interest on loan. So if you have a loan, you will get a total of 3.5%. Its designed to encourage lending.


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## oldtimer (8 Mar 2009)

How can you say your credit union is paying 1.5% on shares? Credit unions decide at their AGM what to pay on shares. Therefore you will not know until next November/December what your credit union will pay on your current shares. They may have decided on 1.5% at their last AGM but that applied to last years shares. If you go into any credit union and ask what is their current interest on shares they cannot tell you because they don't know and will not know until the AGM.


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## D8Lady (8 Mar 2009)

Because the AGM was last Friday.


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## Padraigb (9 Mar 2009)

D8Lady said:


> Because the AGM was last Friday.



In which case you know the rate that applied in the last financial year. As oldtimer suggests, the rate for the current financial year is unknowable.


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## oldtimer (9 Mar 2009)

D8lady, I think you are missing my point. So, okay the AGM was last Friday at which the annual financial statement was presented. The rate of 1.5% was probably recommended and passed. This rate applied to shares held in the financial year just finished. The rate to apply from last Friday to the next AGM will be decided at the next AGM. In other words any credit union affiliated to the ILCU cannot tell you their current rate of interest because they don't know. It has to be recommended and approved at the next AGM.


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## Damian85 (9 Mar 2009)

I've read the article. I'm a bit confused. Is the article implying that 25% of credit unions are not paying a dividend for the financial year 01/10/2008 to 30/09/2009?

If it is, how can this be backed up, as credit unions are only 6 months into their current financial period.


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## CCOVICH (9 Mar 2009)

Semantics aside, it seems likely that if a CU paid 1.5% or no interest in the period just gone, they are hardly likely to better last years rate at their next AGM-given the current financial enviroment.

Or is there evidence to suggest that the financial situation of CUs will improve in the next 9-12 months?


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## Damian85 (9 Mar 2009)

Hard to tell. Some credit unions seem to be going quite well at the moment. With banks tightening up their credit terms, borrowers are going to credit unions. This means credit unions can lend out deposits rather than invest them. The structure of the credit union can allow it to weather financial storms. There will be a time lag until significant interest income is realised. Credit unions are a lot more sucessful at chasing bad debts and arrears as opposed to making investment decisions.


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## oldtimer (9 Mar 2009)

Most credit unions paid dividends of between 1% to 2.5% last year. Credit union financial year usually ends on 30 Sept and the dividend is recommended and agreed at the AGM in November/December. I expect most credit unions will pay very little interest, if any, at year end.


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## CCOVICH (9 Mar 2009)

Damian85 said:


> Certain writers appear to be *sensualising* stories on the credit union movement lately, and we should consider the background of these individuals.


 


Who is behind these articles?  Mills and Boon?


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## kaplan (9 Mar 2009)

What delayed your credit union holding its AGM until last week? You are being paid a dividend up to last September, five months after the year end ! If I were you I would consider one key question : Why did it take until last week for your credit union to hold its AGM ?

Interest rebates are a sham. Credit unions that use rebates charge higher lending rates. In essence what they are saying is “we will overcharge you during the year and if we make enough profits, we may give some of the money we overcharged you back to you.” What’s more when they do, they pay the rebate into the share (savings ) account and not off the loan denying the benefit of the rebate to begin with. 

It has been argued that credit unions are the most non-transparent of consumer operations. They cannot tell how much they can afford to pay in interest to savers until September each year.

Will those unable to pay any interest tell their customers before their year end? Probably not. If they are running at a loss for their first quarter then the probability is they will not pay a dividend: Seanad debate last week quote from Senator Joe O’Toole: _“It is a fact that one third of all credit unions lost money in the first quarter accounts which were published and sent to the regulator. One third of credit unions, many of them small in size, were losing between €100,000 and €1.2 million annually.”_

This year many already know they will not be able to pay any dividend but will they tell their savers? I doubt it, as they will wait until their AGM’s in Nov/Dec and later to tell people the bad news. 

If people are concerned they should ask their credit union if it will be able to pay a dividend this year and can it guarantee that it will. This will flush out whether or not they are one of the “one third”.


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## kaplan (9 Mar 2009)

Damian85 said:


> I wouldn't take articles such as yesterday's article in the SB Post at face value. Certain writers appear to be sensualising stories on the credit union movement lately, and we should consider the background of these individuals.


 
What background are you referring to ? 

Here's the full text of O'Toole's amendment in the Seanad last week, supported by opposition and independent senators
http://debates.oireachtas.ie/Xml/30/SEN20090304.PDF

_To delete all words after “the credit union sector” and substitute the following:_
_“—and noting that loan impairments in some credit unions are running as high as 15% to __20%;_​

_—noting that almost one third of Irish credit unions had first quarter losses which on an __annualised basis are between _
​​​_€100,000 and €__1.2 million;_​
_—noting that many credit unions have been unable to pay dividends this year and that __many other credit unions dipped into reserves to pay dividends;_
_—noting that consequently liquidity has dried up completely in many credit unions;_
_—noting the huge investment losses of many credit unions arising from ill-advised investment_ _in perpetual and treasury funds;_
_—noting that the ILCU is unable to provide or is refusing liquidity support to many __credit unions as the savings protection scheme, SPS, originally set up to provide such __a facility, is inadequately structured and has insufficient liquid funds to satisfy the dayto-__day cash demands;_
_—noting that because of flawed legislation unfortunately the regulator cannot take action __against or sanction for reckless or bad directors; and_
_—noting also that despite the regulator’s attempts to impose higher audit standards and __better governance standards, the reality is that the regulator has no power to take __action against them for non-compliance;_
_calls on the Government:_
_—to make funds available to the credit union movement to give it liquidity and to make __credit available;_
_—to amend the credit union legislation in a manner which will, _​​

​_inter alia__,_​
_(i) establish an independent deposit protection scheme;_
_(ii) confer additional power and authority on the Credit Union Regulator; and_
_(iii) allow the regulator to act independently of the Department of Finance._
_—to establish a commission to examine and report on consolidation, liquidity, investment __protocols, governance and amalgamations of credit unions; and_
_—to allow credit unions to benefit from the proposed Government support fund for __viable but vulnerable companies.”_​​


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## Damian85 (9 Mar 2009)

I'm well aware of what was discussed at the Senad last week. Most of those issues and changes have been discussed for a number of years now. The credit union business model and regulation surrounding it has been reactive in nature regarding change. It is difficult to see how a number of these problems can be sorted on a movement wide scale when you consider that they have a voluntary board, unreliable associate bodies, and a tendancy for credit unions to distain from mutual co-operation amongst each other.

However, there is credit due to a large number of credit unions. They have been successful in actively chasing bad debts and mitigating unfavourable investment positions. The Regualtor deserves credit also. Yes mistakes have been made, but lessons have been learned also. These lessons have cost far far less to credit union members, than the lessons banks have learned.

My problem is that articles printed by some writers paint an unfair picture of the movement. This asserts a negative image on the whole movement, when in reality, many credit unions are doing relatively well. Recent media reports portray the movement as being as reckless as banks in terms of lending and calling for change and solutions which they know is not possible in the short term.


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## kaplan (9 Mar 2009)

Damian85 said:


> These lessons have cost far far less to credit union members, than the lessons banks have learned.


 
How many banks have failed to pay interest to their customers? How many credit union borrowers financed their now negative equity using credit union finance? Why is it credit unions are the highest users of judgement mortgages? Why has the Minister for Finance required a loan arrears code? 

There are some quite good credit union operations but not enough to make a difference. I wouldn't read a cynicism rather a reflection of a reality that threatens the credit union sector. 

If credit unions are running short of cash and can't get at their investments then something has to be done to unlock the store of liquidity that some have and others need. And as loan and investment losses will undermine financial viablity then a structure to solve for this is also needed. It would be a shame to waste a good crisis - the Australians didn't nor did the Americans -they each used crisis to solve long standing problems. Change happened when the good ones woke up, helped along by regulators and politicians who made things happen.


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## Damian85 (9 Mar 2009)

No, I think it is a cynical view (I stand to be corrected/ educated).

Yes mortgage lending is not an activity credit unions should get involved in. On a movement wide scale, they have not done so. Some have, and have suffered.

A loan arrears code was needed as mistakes were made in the past, along with many other guidance notes. However, the DoF and the regulator needs to be more prescriptive as the movement is voluntary.

Credit unions have experienced problems in the past in terms of lending and investments. Credit unions and regulators have set policies to mitigate these faults. The movement has far more awareness and diligence than it had in the past.

Some of the credit union movement is experiencing pain but it is localised and insignificant. Many shareholders of credit unions look beyond the dividend payment. Yes, some will leave, but many have a loyalty factor attached.

Liquidity is a problem, but it needs to be noted that on a movement wide scale, the credit union has abundent reserves. Some writers point out the weaknesses of the movement, but neglect the collective strengths of the movement.

The proposed changes are simply not possible in the short term. The movement is not that developed and the demand or cost/benefit isn't there. 

It is unfair that every credit union gets tarnished from writers who criticise the movement with the same issues. These issues are being addressed.


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## CCOVICH (9 Mar 2009)

Damian85 said:


> It is unfair that every credit union gets tarnished from cynical writers who may have background agendas to criticise the movement with the same issues.


 
Are you just speculating that the negative/cynical tone of their reporting implies that they have an axe to grind or are there writers out there who have a vested interest in talking down Credit Unions?


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## Damian85 (9 Mar 2009)

CCOVICH said:


> Are you just speculating that the negative/cynical tone of their reporting implies that they have an axe to grind or are there writers out there who have a vested interest in talking down Credit Unions?


 
No I have no axe to grind. My problem is the consistently, one sided negative commentary which doesn't give a balanced perspective.


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## CCOVICH (9 Mar 2009)

I wasn't asking whether or not you had an axe to grind, I was enquiring as to how you formed your opinion/view on the motives of the writers of said articles.  But thanks for responding-I am not aware of who you referring to, but if the facts are as you state, then, yes, his writings should be viewed in light of his background I guess.


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## Damian85 (9 Mar 2009)

Sorry!!! I misread your comment there.


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## kaplan (10 Mar 2009)

Damian85 maybe you would like to address the following:

Credit Union balance sheets cannot be consolidated. This means one credit union cannot share its reserves with another nor can it, within granting a loan, share its liquidity. 1+1=2 doesn’t work because the “+” sign is missing. All this talk of large “large reserves” is hiding a fundamental flaw that astute commentators have pointed out requires urgent action. Without a way to create the “+” sign quickly some will run out of cash. And the “+” is also needed to rescue what will be a horrific bad debts and investment losses problem = increased risks of illiquidity and insolvency for many. Some it appears have run out of liquidity lines as they have run out of reliable collateral. US, Canadian and Australian credit unions solved for the equation decades ago.

Last year arrears jumped by 22% to 7.22% of the book excluding another 3.8% of refinanced loans. Total loan impairments amounted to 11%. And these are global figures with individual experiences varying considerably. Factor in continuing investment losses which amounted to about €345m last year and the scale of the problem facing credit unions begins to emerge. 

How can credit unions share their liquidity and reserves? How can they participate as an eligible counterparty and pledge eligible collateral under ECB money market operations? 

Is it reasonable if you know you cannot pay a dividend to savers at year end, not to tell your customers until the AGM after year end?


Kaplan


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## Damian85 (10 Mar 2009)

Bad debts are worrying but credit unions have been limited in their lending activity in recent years. Yes, some are suffering pain now but many are doing well. There has been an explosion in lending growth in the last decade, but credit unions have not experienced this same growth due to inherent restrictions and an increased competitive marketplace. This may be a blessing as this mortgage lending and consumption binge is now effecting the banking sector in far more adverse ways. Bad debts in a recession are inevitable, but this has been largely mitigated by many credit unions through a re-enforcement of prudent lending standards.

As regards liquidity, the movement won't allow a credit union to ultimately fail. The domino effect would be far too dangerous as the public doesn't perceive the movement as being independent from one another. The Savings Protection Fund (yes, it has been a disaster in the past!) can be used to stabilise a credit union in times as such. Short term liquidity problems can be solved.

Yes no dividend is disappointing for some. However, savers who use credit unions for their dividend payment have left within the last decade to seek more competitive rates. The majority of savers and also borrowers. They use the credit union for their lending facilities also. The majority of traditional, loyal members realise that a credit union is not profit driven.

The proposed changes and criticisms aimed at the movement are not represetative of the whole movement and are based on past experience of foreign credit union movements, which are at a FAR more developed stage, a lot more complex, and have a different market to serve.


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## kaplan (10 Mar 2009)

Damian85: *Nice credit unionist PR but you really do need to deal with reality*. The core business of savings and loans is *operating at a loss* – high yielding risky investment income hid operating losses – *costs are out of line at 75%*+ cost income ratio – *net margins have collapsed* and are still heading south – asset *impairment is 1.1bn* at 7% and heading to 10% by year end. *25% will run at a loss for 2009* and in the middle of all this is a* tiny ILCU fund* that represents less than .73% of covered liabilities (initial target 1.5%) where requests for assistance are reported as having been declined by the ILCU – the fund is 64% exposed to marketable and other variable value securities and incurred *declared losses of €5.7m last year*. 

Less than 19% of credit unions are members of the ICB and repayment capacity lending non existent. 

Regulatory investigations have *uncovered bad debt manipulation*, IT system interference and *in all cases* where collateral for loans was checked it was found to be deficient. The regulator has said no more refinancing beyond the original term. The Minister has demanded a arrears collection code. 

Over half have less then a safe minimum of liquidity with nearly a fifth having less than half again. 

Last year three investments alone incurred losses of €137m and still rising on assets of €325m. Another €22m was incurred in January. 

Over to you to respond with fact based analysis preferably dealing with the top 100 who control over 80% of all assets - the others matter little 

Kaplan 

ps. Damian85 don't forget to deal with the PM


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## Damian85 (11 Mar 2009)

Good stuff Kaplan,

I must admit you have your facts to compliment your argument, and I will admit you have successfully challenged the majority of my points and changed a lot of my own viewpoints. Well done

You might post or PM me the sources to your figures if you get a chance. I would be very interested in dwelving further into this information.

P.S. PM addressed


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