# Irish Times: Credit Unions Face Serious Solvency Issues



## Lightning

There are some serious viability issues going on in the CU sector ...

Source:
[broken link removed]



> TWENTY CREDIT unions around the State face "serious solvency issues" and there is likely to be serious problems within the sector, according to the Central Bank's financial institutions supervisor.





> “We have got 28 people currently looking at 414 credit unions – we don’t have the resources to get down into the detail of some potential problem areas,” he said.





> The only option currently available was to liquidate a non-viable credit union, he said.



Don't expect many CU savers to get dividends in September.


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## MandaC

*Credit Unions*

That is worrying.  I have an uncle who has his life savings in the credit union.  He is an older type who does not believe in/is afraid of banks.  If the CU goes into liquidation, do the members lose their shares (savings)?


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## Lightning

The first 100,000 EUR on deposit is protected by the Irish state.

[broken link removed]


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## george.shaw

CiaranT said:


> The first 100,000 EUR on deposit is protected by the Irish state.
> 
> [broken link removed]


 

Providing the state is solvent.  Respected Dan O'Brien of the Economist Intelligence Unit estimates that there is a 25% chance that Ireland could become insolvent. I sure as hell hope not but believe important that this possible outcome is acknowledged. 

Should keep some of savings in Irish credit unions, post offices, banks but would be imprudent not to have some of your eggs in other baskets.


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## corkmike

Don't worry about your savings in credit unions. If 20 were insolvent, remember there is a scheme specially set up to help credit unions trade their way out of difficulty called SPS - Savings Protection Scheme, with over €100 million on hand to bail them out. Credit Unions are coming under pressure as many members are defaulting on loans and their investments are not giving them great returns. To be honest dividends will be low this year but in reality credit unions are far more in touch with the current economic climate than the banks are. In the current climate low dividends are what the banks should be giving depositors and not 3 + %. Also the movement is very strong and credit unions will rally around one another if they need to. Most Credit Unions also have very high reserves - typically 10% to help them out.
Regards
Mike


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## Brendan Burgess

Hi cornmike

€100m would be fine if there was just one credit union. But if a  large CU goes or a few small ones, there just won't be enough to go around.

The Savings Protection Scheme used to be at the discretion of the Scheme's trustees. In other words the trustees are under no obligation to bail out a failed credit union. Is that still the case? 

I agree with you about the crazy rates paid by the banks.


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## SlugBreath

We have a couple of Credit Union accounts where we keep about €10k. It is a very handy source to get cash over and above what an ATM might give you. Last year they paid a dividend equal to about 1%. Not great.
Having closed my Irish Nationwide and Anglo accounts because I have had enough of these chancers and turning my back on the higher interest they were offering I am now left with fewer places to leave my cash and faced with lower interest.
Yesterday we saw that the great mutual, the EBS is now effectively in state ownership. So much for them bleating on about staying as a mutual because of "outside" threats such as UK building societies when all along their biggest threat was within the society itself. They were responsible for the demise of their own mutual status.
At this stage I am considering opening an account abroad but the devil you know is better than the devil you don't know and that is why I am reluctant to do it. But I don't want to be a fool either.
My understanding is that a lot of Credit Unions are in fact Limited Companies?


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## OPTIMUM

Brendan Burgess said:


> I agree with you about the crazy rates paid by the banks.



An Post paying 3pct for 30 day notice doesn't help Banks to reduce rates, when you can get such a high rate from your post office.....


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## Slim

Brendan Burgess said:


> The Savings Protection Scheme used to be at the discretion of the Scheme's trustees. In other words the trustees are under no obligation to bail out a failed credit union. Is that still the case?
> 
> I agree with you about the crazy rates paid by the banks.



Yes - that is still the case despite protracted negotiations between the ILCU, Dept. of Finance and the Registrar about the structure of SPS. The  Minister described the SPS as a "backstop" to the Deposit Guarantee Scheme.

Credit Unions typically do not report annually what their actual defaulters situation is versus the provision for bad debts. Recent changes in the calculation method, called Resolution 49, have meant CUs must set aside even more from surpluses, putting pressure on dividend. THe proposals put forward in the new section 35 will give the Registrar very strong powers to regulate CU lending and liquidity.

Slim


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## corkmike

Brendan Burgess said:


> €100m would be fine if there was just one credit union. But if a  large CU goes or a few small ones, there just won't be enough to go around.
> 
> The Savings Protection Scheme used to be at the discretion of the Scheme's trustees. In other words the trustees are under no obligation to bail out a failed credit union. Is that still the case?



Hi Brendan,
The SPS will be used to help credit unions trade their way out of their position i.e. if a credit union of say 150M in assets were insolvent it would put in 5M to help it trade its way out. Therefore the SPS will be able to cope with 20 credit unions becoming insolvent - not all large of course. There is no denying that if the SPS had to bail out credit unions then they would be in trouble. This is unlikely to happen as most credit unions over the last 3 years have written off most of their poor performing loans / investments. Where the problem will arise is if credit unions were masking bad debt arrears over a prolonged period and all their bad arrears are shown up now due to closer scrutiny and the new calculation of res 49. Most credit unions will be able to trade their way out of their current position - it will take just 2-3 years plus no or very small dividends. Also it is optional for SPS to pay out but their hands are tied. You might remember back a year or two ago Mitchelstown Credit Union had some problems and it caused uncertainty in the Credit Union movement and a run on money. This will not be allowed to happen again so SPS will step in if needs be.
Regards
Mike


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## kaplan

The risk of a systemic credit union crisis is growing and is predominantly located within the top 100 who control close onto 80% of assets (loans & investments) and savings. Many will not be able to generate the surpluses required to fund loan losses, maintain regulatory capital and pay a dividend to savers. International experience indicates loan loss experience of between 50-70% on unsecured consumer loan arrears during bank credit crisis. Credit union arrears over ten weeks, a key risk threshold for short term consumer loans is escalating and heading towards 15% on average. Independent entities collective statistics hide individual experience significantly higher then the sectoral arrears of 13.5% reported by the regulator last week. 

Investment losses have not yet been worked fully through accounts and some will continue to write down values this year. In 100 loan reviews carried out on the larger operators in the last year for the regulator over 85% were found to have underprovided for bad loans. 

Credit union arrears over 10 weeks have jumped by over 100% from 6% to 13.5% (FR) before the new provisioning rules are applied this year which will cause over 300 to increase provisions by between 20-40% (ILCU). 20 are in serious financial trouble (FR)- this group probably includes some of the larger credit unions (€50-400m). One of the top five credit unions with assets >€200m was forced to provide for 10% of its loan book following regulatory intervention last year. Its entire net worth was represented by the value of its building which was conveniently valued at book value in its accounts. It experienced a small run as its agm was delayed. 

New loan issues have shrunk on average 27% last year but total loans only declined by 4% which is evidence of the scale of rescheduling non-performing loans. Loan loss experience in crisis elsewhere on consumer unsecured loans is close to 10% - some higher depending on the pathology – credit union lending is undiversified and concentrated within geographic common bonds and employee sectors (public service). 

Not all hit the 10% regulatory reserve ratio for last year and some didn’t make the 7.75% interim ratio. Upwards of ten have yet to hold their AGM’s for last year- this group contains some of the top 100. The regulator is concerned the ILCU SPS fund which it says is €120m would not be capable of supporting a solvency crisis. This scheme is legally unreliable, unapproved and unregulated by the FR and FSA and is only available on a discretionary basis to members of the ILCU both North and South (over 500 credit unions). There are a number of large credit unions who are not members of ILCU (North and South). As a backstop to a deposit guarantee scheme, in other words a stabilisation component of a credit union deposit insurance system, it is woefully inadequate and not fit for purpose which is why the FR is issuing a consultation document on credit union stabilisation. Questions have been raised over the liquidity of the fund and its ability to provide the emergency support required to stave off a systemic crisis in savers confidence. 

Any analysis of typical credit union operations throws up a host of challenges related not only to rising loan losses but shrinking loan issues, higher liquidity, solvency and provisioning requirements, escalating operating costs and savings migration. 

An unknown number of credit unions will not be able to trade their way out of trouble as the business model is bust. Regulatory rules containing risks – the regulatory reserve ratio and rules on rescheduling loans shows a backbone and willingness to grasp the nettle lacking until now. Hence the collective lobbying by credit unionists against amendments to legislation granting the regulator powers to issue binding rules on credit unions. They want light touch regulation to continue. The game is up for credit unions as this state is on the hook for implicitly guaranteeing over €11bn in savers deposits. 

Kaplan


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## DocOc

Kaplan / anyone,
                      How can the financially ignorant (myself) check how their individual credit union is doing? Can it be seen in the financial reports / year end accounts? Thanks.


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## Moral Ethos

In theory yes, if the books are straight.


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## Lightning

Would the accounts be dated by 12-18 months showing historical information?


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## oldtimer

Credit Unions hold a board meeting each month. At this meeting an up to date account of the finances is presented to the Board showing income and expenses for the month. Not sure if these monthly statements of accounts are available for members' viewing or examination. It gives the Board a clear view of how the individual Credit Union is performing and if there was any downward slide it should be noticed very quickly. So to answer the question, if asked, a Credit Union should, at any time, be able to answer how it is performing.


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## corkmike

Credit Unions review management accounts on a monthly basis and would not give them to members as they are not audited accounts. If you ask you will be wheeled into the managers office and she / he will just show you last years annual report containing the audited accounts and it will be waffled around them. Also many credit unions have covered up bad debts and all the birds are coming home to roost at the one time and also there are new regulations around the calculation of loans in arrears i.e. res. 49 which means more money will have to be put aside for for these provisions and less for dividends.
Regards
Mike


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## kaplan

It is almost impossible to know how your credit union is doing until well after it has gotten into trouble. Even then its accounts are so opaque as to be almost useless to its members who are in the main financially unsophisticated and fobbed off with free draws and booze at annual general meetings. Less than 2% on average bother attending. 

There is no way of comparing how your credit union is doing against others within its peer group. Although the data to publish comparison tables showing key financial safety ratios is held by both the Regulator and ILCU, neither have any notion of publishing even aggregate data. You are left wondering if your credit union is one of the few of the many or the some of the many that is in serious financial trouble. Thing is the ones that are in trouble are probably medium to large size ones.

Credit unions practice the mushroom approach - keep their members in the dark and feed them a diet of rhetoric. They remain the only credit co-operatives around that cannot tell you how much you will earn on your savings until after they have figured out if they have made enough money to pay you. And its said that ten haven't even gotten around to telling their savers yet since last year. Which means their savers are now without a dividend for over 18 months. They probably won't be paid anything for last year and this year.

Have a look [broken link removed] at St Anatomy Credit Union and here for recent [broken link removed]

Kaplan


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## ontour

Kaplan,

The issues you raise are problems that will only be addressed by fundamental restructuring.

From the basic credit union accounts you can compare the reserves, bad debts, loans to savings ratios etc.  As there are so many credit unions there is a large pool of information to compare against.  99.9% of people do not care about monitoring the financial performance of the credit union.  Most of the people at the AGM are there to get out of the house or to enter a draw.  There is very little difference between the ability to review the financial performance of a credit union and that of any listed company.

The league of credit unions signed a software deal with an Irish company a few months ago to provide software that gives them much better systems to evaluate the financial performance and controls of member credit unions.  Probably a long way to go but there are signs of actions.

The fact that credit union dividends are determined at the end of the year is not a bad thing, it may not suit you but there are plenty of financial institutions that you can choose if this is an issue.  When a financial institution quotes you a fixed rate at the start of the year, there is a risk factor that they have to include.  Over the long term the institution that does not make the commitment upfront should deliver you a better return.

The success of credit unions is heavily influenced by the voluntary efforts of directors, unfortunately there are not 5000 people with financial/ marketing / management/ social care skills who want to get involved.  Maybe it was a function of the Celtic Tiger that people did not volunteer and we will all flood back to giving freely of our time.


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## kaplan

The crisis will spark consolidation which is not a bad thing- fewer in number having the resources to build sustainable business has been the way others have matured and prospered. The problem here is time has run out and it is highly likely state intervention will be needed. This intervention will either look to preserve and enhance or crisis manage a work out to limit tax payer exposure. Credit unionists better wise up or they will get the latter.


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## RAINDODGER

just got the credit union accounts (delayed)
it needs to increase its bad debts provision by 6.5mill it was 2.7mill in 2008 this is on assets 62.5 mill.says it generated a surplus of 830 thou .lot  of talk about market conditions also states its guaranteed by the iclu for 4.3mill.
is this c.u. going bust and is it time to shift my deposits?
also are the deposits covered by the state?


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## Moral Ethos

> are the deposits covered by the state?


No.


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## canicemcavoy

Hardly surprising; did anyone really expect that credit unions avoided the pitballs that banks got into? I remember a long time ago being skeptical of credit unions' assurances.


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## pudds

Moral Ethos said:


> No.






> Credit Unions were only bought into the government deposit guarantee   scheme in September 2008 – so all credit union deposits up to €100k are  covered under that scheme.



http://www.*****************.com/category/credit-unions


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## Lightning

*More solvency Issues*

Savers get a zero return for their money at this credit Union ...

*Credit union will pay no dividend after branch posts losses of €6m*

http://www.independent.ie/business/...er-branch-posts-losses-of-euro6m-2349448.html



> A CREDIT union in Tipperary has insisted that its members' money is safe after it recorded losses of €6m, was forced to put aside €9.3m to cover bad debts and has had to seek financial assistance from the League of Credit Unions.





> Accounts for 2009 show that it has been forced to avail of a guarantee of *€3m from the league's savings-protection fund (SPS) -- a bail-out fund* for credit unions that are experiencing funding problems.





> The credit union was forced to put aside €9.3m to cover bad debts last year. This represents *21pc of the total outstanding loans* of the organisation,


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## Marietta

hot on the heels on 24th Sept 2010

http://www.independent.ie/national-...plays-down-key-changes-at-branch-2351262.html



> *Credit union group plays down key changes  at branch*
> 
> By Majella  O'Sullivan
> 
> Friday September 24 2010
> 
> THE IRISH League of Credit Unions (ILCU) has moved to ease  concerns about one of its branches, following the appointment of four  new members to its board.
> It is also understood that a senior official has stepped down at the branch.
> A  statement from the ILCU has confirmed that "an in-depth review" had  taken place at Killorglin Credit Union, Co Kerry, in the past number of  weeks.


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## chasm

My local CU has not paid a dividend since 2007, well it was paid in  january 2008 for the year 2007. I asked them on a number of occasions  this year if it would be possible to get a copy of the AGM as i hadn't  received one. On the first 2 occasions i was told by the guy that he  would send it out. On the third occasion i was told they had not held it  yet. I asked if they could tell me why (seeing as they are supposed to  hold it between october and february)- no reply.  So i phoned the FR and  was informed that my local CU has been asked to hold off on having  their AGM until a few issue have been sorted.  
My savings are about 3 times my loan amount and i'm thinking it may be a good idea to clear the loan and withdraw my savings!


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## kaplan

ILCU would want to come clean on how exposed its "discretionary" solvency bail-out fund is. It's got only €120m to fund losses in c€12.0bn in assets of which about €7bn is out in loans. The fund is also used to cover its 100 or so Northern Ireland member credit unions who are not covered under the UK depoist guarantee scheme - so ILCU says it offers a "discretionary guarantee" where it might, only if it helps out a credit union, pay out up to a paltry €12,000 if it fails. Problem is of course ILCU hasn't the financial standing to back a guarantee so it dresses up its wooly discretionary "pals" fund to make people think it offers a guarantee.

Earlier this year bad debts had reached 13% and were still climbing. The end of the year will see a lot more credit unions being told to hold off having AGM's until their solvency is assured which appears to have happened to about 20 this year. 

Chasm - seems your credit union didn't inform you its agm had been delayed by under instructions of the regulator. It should have under law held its agm by the end of January unless instructed to do otherswise by the regulator. Are you saying that when you contacted your credit union for a copy of the AGM (which I take it means accounts for last year as well) you weren't told it hadn't been held yet? Naming the credit union here would allow its other members to understand what's happening.


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## chasm

kaplan said:


> Are you saying that when you contacted your credit union for a copy of the AGM (which I take it means accounts for last year as well) you weren't told it hadn't been held yet? Naming the credit union here would allow its other members to understand what's happening.



Kaplan, The first time i requested it, the guy asked was there anything specific i wished to know about, to which i said no, i just wanted to see the copy of the AGM. The Guy said he would send me out a copy in the post.
I hadnt heard anything for over a week so i went back in, (as i was also waiting for them to send out my passbook, which had been left in to be uupdated). I asked again about the copy of the AGM which i had requested on my last visit. The same guy was behind the counter as on the previous visit, and he just said "has it not been sent out yet?" and then said he'd locate one and send it out.

After another couple of weeks i went back in and asked and there was a young lady behind the counter. I asked her about the copy of the AGM and she said that the AGM had not been held yet.

The Credit union is Carrick-on-Shannon and district C/U


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## Palerider

Interesting posts, just to throw a spanner into the C.U. discussion, you should ensure that the C.U. you deal with is a member of the Irish League of Credit Unions ( ICLU ), If it is you have some protection in the event of default, If it is not then in my opinion you should take your money out despite Govt G'tee and run, the risk is too great and the first thing you would hear of a problem is when the doors do not open......too late, check it out.


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## Lightning

chasm said:


> My local CU has not paid a dividend since 2007, well it was paid in  january 2008 for the year 2007. I asked them on a number of occasions  this year if it would be possible to get a copy of the AGM as i hadn't  received one. On the first 2 occasions i was told by the guy that he  would send it out. On the third occasion i was told they had not held it  yet. I asked if they could tell me why (seeing as they are supposed to  hold it between october and february)- no reply.  So i phoned the FR and  was informed that my local CU has been asked to hold off on having  their AGM until a few issue have been sorted.
> My savings are about 3 times my loan amount and i'm thinking it may be a good idea to clear the loan and withdraw my savings!



So you are getting a 0% return from a CU that might be in difficulty. Is there any reason to keep your savings with them? Personally, I would move them in the morning to a safer place where you will get a return for your money.


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## ontour

CiaranT said:


> Is there any reason to keep your savings with them?



The credit union may be a local credit union that lends to your family and friends to purchase necessities.  It may be the only source of finance to meet many needs of people in your locality.  The social cost of the local credit union closing, due to a run on shares and deposits, may be judged to be a higher priority than the interest forgone by not moving the savings.

There is more to financial services than cost, if you make choices based only on interest rates you have to understand that there are individual and collective implications.


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## chasm

CiaranT said:


> So you are getting a 0% return from a CU that might be in difficulty. Is there any reason to keep your savings with them? Personally, I would move them in the morning to a safer place where you will get a return for your money.



TBH it was only when i looked at it recently that i realised that i had not received any interest since 2007. I am on a low income and i found them very handy to get loans from, (although my own bank seems to be happy enough to give me a loan in the last few years.) I think i may repay the last of the C/U loan and just leave a token amount in there just to keep the a/c open, in case they get their act together!


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## Lightning

With the level's of arrears that have been reported by the CU's, are they really still lending today? especially to people on low incomes? From what I gather, CU loans are quite sparse right now due to the huge arrears and their very serious solvency problems. 

Also, if you own bank is happy enough to give you a loan, then why not move your CU savings, to a safer home with a return on your money. It is good to see you are thinking about such a course of action.


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## ontour

Each credit union is different, there are many that are actively promoting loans at the moment and there are others who wouldn't be allowed to lend at all.  You can't make genralisations about CUs in the same way that you do about banks.  Banks don't care whether one bank manager was very diligent about risk in that last few years,  they will apply guidelines across all branches. 

Many low income people are looking for small loans to pay for a new washing machine or car insurance.  I would speculate from some knowledge that the majority of bad debts accrued in credit unions were not from low income loans.  In the same way as the EBS, credit unions, especially the big ones chased a lot of speculative property investment lending in the dying days of the celtic tiger.

I am unclear why you contend that the banks are a 'safer home'?  Also how do you get banks to commit that they will be 'happy enough' to give you a loan in the future?


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## Brendan Burgess

[broken link removed]



> Loans in arrears for credit unions in the Irish League of Credit Unions  increased to 14.9 per cent from 9.4 per cent in the year to June,  according to figures released today.


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## Time

Is there a list available of the CUs that have been told to hold off on their AGMs?


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## Peter54

In 2008, I had a large sum of money on deposit with my CU but when I decided to take out a loan for a much smaller amount than what I had on deposit they turned me down.  I smelled a rat and removed my savings much to their annoyance.


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## Time

Their loss.


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## fobs

Another one in the Independant yesterday

http://www.independent.ie/business/...ut-of-euro43m-as-bad-debts-mount-2355275.html


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## Time

Shocking stuff.


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## Lightning

Shocking is right, and this is just 1 CU. 



> A CREDIT union has had to be given access to *€4.3m from a bailout fund *after a spike in bad debt provisions, it has been confirmed.
> 
> Charleville Credit Union in Co Cork has been provided with the guarantee, with the money to be given to it if some of its loans are not recovered within two years.
> 
> *A deficit of €5.5m* was recorded after the union was forced to put aside extra provisions for bad debts, due to the severe drop in the value of properties which loans were secured against


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## kaplan

Ontour: Credit unionists implicit argument is people should leave their money on deposit with their local credit union so that it can in turn lend this to others in the community even where they will be not be paid interest on their deposit. 

If a credit union cannot pay a dividend then it is an unsafe place to save as it cannot meet its obligations to savers which is to pay a reasonable rate of return for their money. In essence the "save and accept no dividend" argument is a recipe for moral hazard as the discipline to address problems by closing down or merging bad credit unions is absent. So you can run one into the ground and get away with it. 

Why is the credit union unable to pay interest?

Poor governance and management is at the root of troubled credit unions. The only way to promote their continuing operation is through merging them with others that are better run. This is what happens in other countries. Either that or they are wound down. Cases of preserving credit union independence using new boards and management who have turned a credit union around are untypical as this process usually leads to chronically distressed operations.

The problem here is twofold: (1) Bad credit unions have been allowed to continue operating and (2) it's hard to merge as tight common bonds prevent a credit union in say town A being merged with one fifty miles away in town B - same is the case with employment based unions. 

Credit unionists here are fond of saying no credit union has ever publically failed which means either Irish credit unions are better managed and governed than others or something else is at work. In truth Irish credit unions are not allowed to fail and are bailed out no matter what.

We are no longer dealing with small mom & pop outfits - the ones reported in the press and known of privately are medium to large full time staffed credit unions with assets over €60m with customer numbers over 20,000. Some are quite large with assets well over €200m. The tax payer exposure through the guarantee system is over €10bn - the top 22 credit unions account for 26% of this - the top 100 80%.


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## Complainer

kaplan said:


> Poor governance and management is at the root of troubled credit unions. The only way to promote their continuing operation is through merging them with others that are better run. This is what happens in other countries. Either that or they are wound down. Cases of preserving credit union independence using new boards and management who have turned a credit union around are untypical as this process usually leads to chronically distressed operations.


Is this your personal experience, or is there any decent research on CU turnarounds? It seems just a tad defeatist to walk away from the problem. Why not just provide good governance and management?


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## ontour

kaplan said:


> If a credit union cannot pay a dividend then it is an unsafe place to save as it cannot meet its obligations to savers which is to pay a reasonable rate of return for their money.



The expectation is that credit union protects your savings, not paying a dividend this year may be the correct course of action to protect your savings in the medium/long term.  If one credit union is prudent and does not pay a dividend and another continues to act recklessly and pay dividends, your approach leads to the money leaving the prudent credit union and flooding in to the reckless credit union.  Good credit union collapses and in time so will the other one.  Interest on your savings is important but if everyone takes a very short term view, consumers will be the eventual losers.



kaplan said:


> Poor governance and management is at the root of troubled credit unions. The only way to promote their continuing operation is through merging them with others that are better run.



If you ignore the current financial crisis, many credit unions do not have the economies of scale and skills to fulfill prudent financial regulatory and compliance practices, so reform and consolidation was needed even before the current problems.  The main problem I see with consolidation is that it is usually bigger institutions absorb many smaller ones.  I fear that it is many of the larger credit unions that engaged in 'more progressive' lending practices that are now in more trouble.  This feeds an argument that the smaller credit unions are better as they did not lend large loans for speculative or investment purposes.  

The answer is much more active regulation of the financial services sector paid for by the institutions.  A regulator should be able to review the rules and practices of a financial institution and their implementation.  The state needs to be involved in governance structuring, risk modeling and compliance enforcement and review.  This will lead to a regulatory enforced change to credit union structures which the credit union movement is not capable of due to the political nature of credit unions and their representative organisations.


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## dereko1969

This post makes me wonder if the Credit Unions have wised up at all to the new realities
http://www.askaboutmoney.com/showthread.php?t=144407
I'm a member of a credit union and happy with my union but I'd be very worried if they started giving out loans of substantial amounts to someone walking in off the street like in this case.


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## Lightning

More serious trouble for credit unions ...

*Credit union loan arrears rise to 14.9% by end of June*

[broken link removed]



> CREDIT UNION loans in arrears increased to 14.9 per cent of all loans by the end of June, the Irish League of Credit Unions disclosed yesterday.
> 
> The ratio increased from 9.4 per cent at same time last year. League chief executive Kieron Brennan said savings were pledged against 30 per cent of loan arrears.
> 
> Write-offs in the year to June were €66 million, or 1.03 per cent of all loans, compared with €51 million in the year to June last year.


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## kaplan

@complainer - there is ample evidence here of credit unions that have not managed to turnaround and continue in a distressed state, with new blood on board. The problem relates to an unwillingness and inability to practically remove an entire board and management - finding replacements is quite difficult.
UK experience is one where credit unions are either merged or closed - albeit the sector there has had unique problems.
The evidence from US NCUA/NCUSIF activity is that rehabilitation (new board & management) is not the chosen option but arrangements are made for a quick merger with another. The objective is to prevent runs and preserve service to customers. Because people realise their savings are guaranteed and service will continue they are not at all perturbed if their local credit union is merged with a better run operation. 
@ontour you highlight a problem - joining small turkeys with a bigger ones just makes even bigger turkeys. If small credit unions are less risky - this is only because they no longer fulfil their purpose and have become "dysfunctional savings clubs" which brings up another problem as they are no longer credit unions but savings unions working as retail deposit gatherers for retail banks. 

Credit union savings are not being mobilised to make good loans but are being channelled into the banking system which is not lending.


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## corkmike

Getting rid of boards and management in their entirety is a ridiculous  idea that the regulator is currently pursuing i.e. informing board  members when they are up for election they are not to go forward for  election. Some board members and management should go.
Credit unions over the past 10 years definietely lost the purpose of why they were set up for.
Merging credit unions in many cases is not a great idea and not possible  in many situations as often neighboring credit unions are in the same  problems as they pursued similar practices competing with one another.  Often merging would only result in a weaker overall credit union that  may not serve 2 groups of members.
Credit unions will see arrears rise in the coming years and even though  the current SPS fund is a great idea, if the economy does not turn  itself around in the next year which i doubt then it will start to be  depleted and will itself be in trouble.
Credit unions must be left to trade their way our of a situation with  the SPS only used as a guarantee. The regulator must not gain control of  the SPS and credit unions should contribute more to the SPS within the  coming year. Unfortunately not all credit unions are in the SPS. 
Credit unions face a tough few years ahead, with the prospect of any  dividend in many cases small - many lucky to pay .5%. With easy money of  3-4% available, many members will start to move their money elsewhere  when they realise they are getting a small dividend again this year. The  side effects of which could affect many credit unions.

Regards
Mike


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## Wig

From the Irish Times ...



> The financial regulator also warned the State's credit unions are systemically underprovisioning against loan losses.
> 
> "We are finding *systemically . . . underprovisioning in the credit union sector*," Matthew Elderfield told the committee. "That's a worry to me."
> 
> Mr Elderfield said the regulator had discovered credit unions were *underprovisioning by 40 per cent* and that he intended on dealing with this problem.


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## kaplan

*Regulator highlights worsening credit union loan arrears*

Some quotes from the regulator made at the ERA meeting this week: 

"There is severe pressure on the balance sheets of the credit unions. I want the boards and managers of the credit unions to examine their loan books in detail to discover whether they are performing, whether their provisions are correct, whether they will withstand stressed conditions and whether they need to reduce the dividends paid to members. The credit unions must be financially responsible."

"It is not just a matter of standing back and exhorting the credit union movement to do the right thing, which we will do. Our main responsibility is to check the position of the credit unions. In that context, we initiated a loan book review with which we have had outside assistance. I do not know the exact position but questionnaires, and so on., have been distributed."

"The evidence in this regards shows that credit unions are under-provisioned by 40%. The loan book reviews for the first 100 credit unions - I do not know whether reviews for all the credit unions have been completed - show that there is systematic under-provisioning among credit unions. That is a matter of concern and we must take it seriously. We will continue our work in respect of loan books and we will continue stress testing. We will work through the sector on a systematic basis and challenge credit union boards with regard to the quality of their loan books. We will also ensure that the level of provisioning has improved."

"The Deputy asked about the “little guy” and one of the main actions we can take for such a person is to ensure there are strong credit unions. It is precisely because credit unions operate in the common good, in the way they do, that we want to ensure their strength for the future. We have said in a number of meetings with credit unions and representatives of that sector that we are not seeking big or little credit unions but rather strong credit unions, regardless of size. That is a very important point."

"We have just finished a programme of going around the country meeting credit union representatives face to face. Some 400 people from the sector attended an event in Dublin last night. It is not quite at the Aviva Stadium level yet but it is a popular and worthwhile event for people to attend. As Mr. Elderfield noted, it is precisely because the unions are important that it is vital they remain strong. Mr. Elderfield gave the 40% figure and that is what we have seen after the initial tranche of loan book reviews, and we are aiming to complete 200 loan book reviews for the sector by Christmas. We will finish the remaining 214 books next year.
The 40% figure contains a multitude of sins and although some may be over-provisioning, others are woefully under-provisioned. This exercise is designed to allow us to target weaker credit unions. It is not factual that just because someone is a volunteer, he or she is not qualified to run a credit union. It is clear the future of the credit union movement will be as a voluntary institution. Some excellent and highly qualified volunteers already bring an awful amount to the sector. However, in the same way as there are people who need to be moved out of the banking sector, there are those who need to be moved out of the credit union sector for the good of its future. That is why we are pursuing this exercise while at all times being cognisant of how this is a special sector, important to the life of the country."


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## foxyboxer

I have 75k in my local credit union. I have not been home in a while.
This thread has me a little worried. Is that justified?


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## Lightning

Why do you have 75,000 EUR in the Credit Union? What return are you getting for your money? Do you have savings elsewhere?


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## Marietta

foxyboxer said:


> I have 75k in my local credit union. I have not been home in a while.
> This thread has me a little worried. Is that justified?


 

It depends how your local credit union is doing.  Again I think €75,000 is far too much dosh to be tied up within one financial institution, it might be best to move some of it out into other banks.


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## Towger

75k is over twice the max my local CU will allow you to have in it.


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## corkmike

Towger said:


> 75k is over twice the max my local CU will allow you to have in it.



Incorrect, many CUs have no limit - its a free for all - each one makes their own rules so check it out.

Mike


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## Towger

corkmike said:


> Incorrect, many CUs have no limit - its a free for all - each one makes their own rules so check it out.
> 
> Mike


 
Please read my post again.


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## corkmike

Apologies


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## Lightning

*Up to 15 credit unions face bailout in next three months*

*€45m of €125m bailout fund to be used ...*

http://www.independent.ie/business/...ace-bailout-in-next-three-months-2403195.html



> UP to 15 credit unions may need to be bailed out by a special rescue fund in the next three months, the president of the Irish League of Credit Unions told a private meeting at the weekend, the Irish Independent has learned.
> 
> This would soak up around €45m of the bailout fund run by the league.
> 
> The league, the largest representative body for credit unions with a €125m bailout fund, operates the Special Protection Scheme fund (SPS) to prop up ailing credit unions.


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## Lightning

*Credit unions may need restructuring*

[broken link removed]



> The country's credit unions may need to be significantly restructured if arrears continue to rise and lending opportunities remain subdued, the recently appointed registrar of credit unions, James O’Brien, has warned.
> 
> Some credit unions lent aggressively during the credit binge and are now struggling during the downturn.
> 
> "Not all credit unions will make it through this difficult financial and economic environment in their current structure," Mr O'Brien told the National Supervisors Forum today.


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## kaplan

*ILCU's goose is cooked as the game is up for its SPS?*

Full text of what the regulator had to say is [broken link removed]. He's not pulling his punches in what is a robust warning to credit unions to get their act together. It seems the regulator may have been spooked by its stress tests and Grant Thorntons review of credit union financial stability - results from these came in after it published its stabilisation consultation document.

*"with regard to stabilisation arrangements for credit unions trends emanating from the sector are suggesting that even greater reform may be required than those envisaged in our recent consultation paper."*

The regulator is also concerned over risks of a contagious run. *"If individual credit unions don’t face up to their current business difficulties they are risking their future and possibly that of the sector overall, given the indistinguishable nature of the credit union brand between credit unions and so the potential for contagion to spread."*

It's abundantly clear ILCU's goose is cooked and one can imagine its senior officers rushing out to buy geriatric nappies. Skid marks on underpants springs to mind.

Still people have been well warned of serious trouble emerging - it may be only a matter of time before a big one causes a run. All eyes will be on some quite large operations that showed extreme stress last year.


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## ajapale

Related issues raised again today

aj
mod


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## Harry31

I believe the central bank does not want credit unions involved in lending large amounts for the future & after speaking to a couple of people I know who have negotiated new terms with the bank for their loans, they are being advised that they must pay the bank loan before any credit union debt.  They were also advised that this is a guideline from the central bank!  It looks to me as if the CB is again letting the banks take centre stage & attempting to undermine CU's - the CU's may have made mistakes, but they have been with us in good times & bad.  Having the banks calling the shots again does not give me any sense of comfort - they made such a great job of things in the past!,


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