Sunday’s “This Week” programme coverage included a segment in which a somewhat evasive ILCU chief executive declined to say how much he expected credit unions loan losses will be, what their current holdings in junior bank bonds are and what bail out funds were left available for use by the ILCU.
One would have thought that as ILCU projects itself as a prudential monitor under its SPS role, it should know all the aggregate numbers. It is fair to say that it has consistently downplayed and at times denied problems when a growing number of individual credit unions are known to be in quite serious trouble.
One would have thought that as ILCU projects itself as a prudential monitor under its SPS role, it should know all the aggregate numbers. It is fair to say that it has consistently downplayed and at times denied problems when a growing number of individual credit unions are known to be in quite serious trouble.
ILCU declared charges €48m on its €118m bail out fund in supporting just thirteen credit unions in its 2010 accounts.
It's notable that €11m investment losses have been incurred since 2008. According to this chart which is drawn from ILCU's published accounts, net funds available at the end of 2010 were €73m with indications that at least a further seven were to be supported. With more looking for help, estimates since of its uncommitted bail out funds indicate the amount left available are said by some to be c€30m. This is why ILCU will try to get its members to double their annual contribution to the bail out fund.
Some but not all credit unions debit their annual bail out fund fee and their annual affiliation fees to their customer’s accounts. In any event the amount of money it has to bail out troubled credit unions, which everywhere else would be closed or merged with others, is wholly insufficient. I have estimated that government could be required to provide well over €500m in capital support to credit unions – but it will only do this on the basis that credit unions reform their business model. Indeed reform is a specific requirement under the IMF programme.
How bad is the credit union sector stability problem? The aggregate estimate of loan losses is between €1.15bn and €1.45bn.
As yet further investment losses have still to materialise. Credit unions are said to hold about €1.3bn in Irish bank bonds of which e€300m is in junior bonds –these are exposed to the real risk of significant haircuts which could amount to 75%. They have already incurred an estimated €200m+ in losses in other instruments invested in during the boom. Many were high risk products credit unions elsewhere are not permitted to invest in.
One in five credit unions could not pay any dividend to savers last year and another two out of four paid less than 1%. As dividend rates are a critical financial performance benchmark or safety threshold, these numbers indicate that three quarters have problems.
The outcome of financial stress tests soon to be announced could well trigger the need for government intervention to provide capital and insist on the closure and merger of troubled credit unions.
Consolidation could see numbers reduce to about 50 or so credit unions. Recent banking stabilisation laws permit government to order a credit union be taken over by another credit institution including a bank.
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Yet it’s possible to imagine a credit union sector reformed as a modern European style credit co-operative. In return for state aid and support, credit unions would cede independent autonomy to become members of a federated network owning a central finance facility which would provide them with the resources to modernise and deliver on a better range of affordable financial services to ordinary people.
How bad is the credit union sector stability problem? The aggregate estimate of loan losses is between €1.15bn and €1.45bn.
As yet further investment losses have still to materialise. Credit unions are said to hold about €1.3bn in Irish bank bonds of which e€300m is in junior bonds –these are exposed to the real risk of significant haircuts which could amount to 75%. They have already incurred an estimated €200m+ in losses in other instruments invested in during the boom. Many were high risk products credit unions elsewhere are not permitted to invest in.
One in five credit unions could not pay any dividend to savers last year and another two out of four paid less than 1%. As dividend rates are a critical financial performance benchmark or safety threshold, these numbers indicate that three quarters have problems.
The outcome of financial stress tests soon to be announced could well trigger the need for government intervention to provide capital and insist on the closure and merger of troubled credit unions.
Consolidation could see numbers reduce to about 50 or so credit unions. Recent banking stabilisation laws permit government to order a credit union be taken over by another credit institution including a bank.
Perfectly designed for an
Yet it’s possible to imagine a credit union sector reformed as a modern European style credit co-operative. In return for state aid and support, credit unions would cede independent autonomy to become members of a federated network owning a central finance facility which would provide them with the resources to modernise and deliver on a better range of affordable financial services to ordinary people.
ILCU's persistent denials of credit union problems and media/lobbying campaign has sundered what little reputational capital it had after its decade long promotion of an investment driven dividend maximisation strategy.
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