Warning that some Credit Unions won't be paying dividends

Brendan Burgess

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The Irish League of Credit Unions has said a number of its members will not be able to pay a dividend for the 2009 financial year because of the big fall in the value of investments.

full story
 
This is true but must be taken in context. The CU movement has about €12bn in assets/savings. About half of this, €6bn, is lent out to members and the remaining €6bn has to be invested. This is invested in a combination of bonds, shares, deposits and gilts etc. A small portion, about €170m, was invested in the now notorious "perpetual" bonds. These were sold to Credit Unions who, mostly, did not realise that the issuing bank could postpone the repayment date indefinitely, hence "perpetual". As the financial markets have sunk, bank bonds, and these in particular, have tanked in value, although they continue to pay decent coupon. So, at year end the CU's auditors are obliged to value these bonds at lower of sum invested or market value on the balance sheet. If the value has fallen from last year end by, say, €500k, then the CU must find that €500k from its operating surplus - a huge hit in any one year. Realistically, most CUs have practically written these off and the surplus will recover next year and subsequently, allowing CUs to pay decent dividend again. If the bonds ever recover in value it will be a huge bonus.

Slim

PS:CUs will still have to deal with equity investments which have gone bad and the likely increase in bad debts.
 
Slim
You may need to revise your analysis for last year an include ISTC bonds and losses in the Central Treasury Trust. Losses reported on in the media totalled over €220m. Include FRN's and a host of retail investments including tracker bonds, unit linked, with profits; all of which are currently under water. Estimates of losses range 2-10% of invested assets much of which occurred after last years end accounts (Sept 08) and had not yet reflected the post Lehmans collapse in asset values.

More recent media commentary quoting official sources put the number of credit unions operating at a loss (unable to pay a dividend this year) at 120. Since then the figure has grown and it now appears closer to 220. Total assets of €12bn is a nonsense figure as you can't add credit union balance sheets together. Problems will arise across a range from small to large unions who will inform their savers later this year they are unable to pay any dividend.

I reckon that losses from investments and loan defaults will range 3-10% of total income earning assets in the next two years which means cu's will not only fail to a dividend this year but will struggle to do so next year as well. Some will take substantial hits to their reserves that may trigger regulatory intervention to head off their insolvency.

Concerned that some will try to dip into their reserves to pay out to savers, the RCU is to require a regulatory reserve of 10% to total assets. Things are not looking too good either on the liquidity front with many unable to access under water investments without triggering large losses. The regulator has moved to reign in lending and many have been told only to lend a certain percentage of net monthly positive cash flow (loan repayments and net deposit increase). If anyone is concerned the should ask their credit union if it will be in a position to pay a dividend this year.
 
In regard to paying a dividend this year will this relate to the year 2008. Do all credit unions have the same financial year end? What is the approx time lapse between year end and date of their AGM which i presume is the first indicator of their ability to pay a dividend. Finally is it possible get copies of the Audited accounts from a central source say Irish League of Credit unions or does one have to approach individual Unions. It is ironic that the strength of the movement in building of hugh sums of funds has led to some of their investment problems/losses
 
It sounds to me like the Financial Regulator is treating credit unions unfairly. The banks are losing billions and costing the taxpayer more billions and yet they're allowed to pay interest on their deposits. Who's paying for this?
Some credit unions have made losses on bonds they were sold by the same banks and yet they're not allowed to pay any return on savings to their members, even out of previous years surpluses.
Credit unions aren't asking for any state bailouts, yet they are getting all sorts of restrictions imposed on them.
The other thing that bugs me is that the Financial Regulator seems to do his credit union regulation through the media in a very damaging way, yet there's not a peep from the Regulator when it comes to regulation of the banks. I wonder why.
 
I think the comments re dividend problems arising from fall in investments came direct from Irish League of Credit Unions. We would all be possib ly better off if the regulatory authorities had been more active in the past and their current monitoring of the credit unions contrasts sharply with the "light touch" adopted towards the banks. Perhaps in the long run the credit unions will be all the better for it.
 
Credit unions' financial year runs from 1st October to 30th September. Dividends this year will be based on savings from 1st October 2008 to 30th September 2009. The rate recommended will be in the annual report sent to each member at least a week before the AGM. Most credit unions hold their AGM at end November/early December. Most credit unions have a fair idea now whether they will pay a dividend or not and the better credit unions would know what that dividend might be. My credit union has written to me with the following ''our credit union will be in a position to pay a dividend of at least 1.75% this year.''
 
@Oldtimer: It is good to read that your credit union is communicating with its members/customers but can it pay from trading surplus or will it be forced to try and use reserves?

What of the rest particularly those who know they cannot pay a dividend this year – should they not also write to their members to let them know or are they hoping Government will prevail on the Regulator to allow them to raid their reserves (community capital) to pay a dividend ?

On a related issue I note the ILCU is now saying “ as a not-for-profit organisation the inability of some credit unions to record a profit does not have the same significance for us as it would for banks. Credit unions typically return any surplus they make to their members in the form of a dividend and their inability to pay that dividend will be a disappointment but considering that the average savings of our 2.2 million members is approximately €4,000 that dividend would typically have been small.”

Of course the “average” is a nonsense as many people have far more in savings and is being used to downplay the effect of not paying a dividend – even still for any credit union trade body to reason it is ok not to pay a dividend as savings balances are small is quite something new.

There is a big PR move to position “dividends” as a share of profits and not what the vast majority of savers consider it to be – interest. Some are saying that unlike banks credit union shareholders have not lost any money in their credit union shares!

Unlike mature credit union movements Irish leadership clings onto an outdated concept of “shareholders return for risk” rather than what dividends are now regarded as – equivalent to an interest rate on a deposit account. I have no doubt that the people who have entrusted their entire household savings to their credit union will not take to kindly to being told they will not be paid anything this year and probably nothing next year as well. They will hardly be impressed to be told this is ok as they only save a small amount and can always access loans – problem with the latter bit is many credit unions have no money to lend.


See here [broken link removed] for more on the credit union crisis
 
Thanks Olddtimer for your helpful reply. I do hope the credit movement generally can weather any storms as they are an excellent movement with much voluntary input
 
@anyone1 Over €200m was documented as being irretrievably wiped off community capital last year with another €300m to go this year and this is just in investment losses- in banking terms this equates to losses of c€16bn which granted is lower than banks current estimated losses but a hell a lot more than “not ever losing a single penny” if you accept that a credit unions worth is owned by its owners/members. And yes credit unions do cost the taxpayer as their income is not taxed and they have yet to be bailed out by government. The bill for this is likely to be similar in relative scale to the banks. The one time ordinary people need their credit unions many are unable to respond and increase their lending – people need to know why if they are to make sense of what has to be done to ensure credit unions survive.
 
@anyone1 Here is some of information in the public domain. Apart from the reported €200m in losses in 2008 a further €100m is known of this year. Last year credit unions reported in their accounts investment losses of between 2% and 10% of invested assets.And did so before the full blown financial asset collapse triggered by Lehmans which means losse incurred after last September have to be accounted for this September (the credit union financial year end).

115 credit unions were running at a loss for their first quarter this year. This figure grew to 220 by the end of the second quarter. None of the tens of thousands who save with these credit unions are aware of their trading losses and the fact that they will probably not make any surplus from which to pay for money borrowed (saved) from their customers (consumers) who are also their members (owners). Trading losses are not solely a factor of investment losses but also a dramatic collapse in operating income from lending activity. One cannot book unpaid interest as income!

20 credit unions didn’t pay any dividend last year and an unknown number dipped into their reserves. Over one in two were below liquidity safety levels in March. Credit unions have assets they can liquidate but cannot as they will incur huge losses – some investments would lose 30% in value if liquidated. They are only liquid if prepared to book losses. They are looking for a derogation on accounting rules that require them to mark to market investment values. Other assets include tracker bonds,unit linked funds, insurance funds all of which have no secondary market and are effectively locked in - where encashed they carry hefty penalities and accruing losses.

The ILCU has said that the regulatory reserve ratio regime proposed by the financial regulator would increase the numbers of troubled credit unions from 115 to 180 (their figures based on first quarter results).Admitted to, two months after the regulator first spoke of 115 loss making credit unions. It's a body that has claimed credit unions are safer than banks - yet Irish covered banks are guaranteed by the Government - credit unions are not. Savers are to be covered under the €100k deposit guarantee scheme once legislation is enacted legislating for the guarantee announced last September.

Total impaired assets are exposed investments of at c€2bn+ and impaired loans at the end of last September of €715m. Impaired loans are rising not declining and loan demand is dropping.

Credit unions are lending to one another to provide liquidity support funding in a non-transparent ad-hoc system without adequate regulatory oversight. Some are said to have engaged in cross border transactions to massage liquidity profile for regulatory returns.

The usual spin and bluster is been spun by some credit unionists who continue to deny in the media what they are pursuing in private and that includes a government guarantee for investment losses and a liquidity solution.

No one is scaremongering just telling it as it is – maybe a crisis will be averted if Government acts in time. Meanwhile you are right if people are worried they should ask their credit union if it will generate enough profit to pay a dividend this year. Finally you would not excuse the voluntary board of a hospital for poor patient care yet for some reason voluntarism is being used as cover for poor governance and management of financial assets representing the savings of ordinary people. The losses being experienced by credit unions were avoidable had they prudently managed their investments. Funding government by buying its bonds is something that credit unions should always have been doing instead of investing in risk products they did not understand.

The bottom line is credit unions should have lent more and invested less (wisely and prudently)- instead of morphing into dysfunctional investment managers, losing millions in the process and ending the boom years with a destabilised business model.
 
The ILCU have circulated this advice to CUs re the Irish Independent article of Tuesday last:
"A report appeared in today’s Irish Independent on credit unions suggesting that half of credit unions are likely to report losses at year end. As you know information on the financial position of credit unions is reported to the Registrar on a quarterly basis and this information is available to the League. The most up to date prudential returns do not support the view put forward in the Independent story.

If you are asked about the issues reported in today’s Irish Independent you should say that official returns do not support the story and we would offer the following three points as appropriate additional information:


1. The Irish League of Credit Unions in a press briefing in April did advise that a number of credit unions would find it difficult to pay a dividend because of the requirement under accounting rules to write down their investment assets to current market value. That remains an issue which will impact the end of year results in September 2009.


2. However, as a not-for-profit organisation the inability of some credit unions to record a profit does not have the same significance for us as it would for banks. Credit unions typically return any surplus they make to their members in the form of a dividend and their inability to pay that dividend will be a disappointment but considering that the average savings of our 2.2 million members is approximately €4,000 that dividend would typically have been small.


3. Quite apart from the expectation of a dividend members save with the credit union so that they can have access to loans. In the current credit crunch and the tightening of loan availability from banks this service remains one of the main reasons why our members continue to save with us."

 
Credit Union covered under deposit guarantee scheme

Irish covered banks are guaranteed by the Government - credit unions are not.

Unless my eyes are deceiving me, the Financial Regulator's own website clearly states that savings in credit unions are guaranteed under the Irish Deposit Protection scheme up to €100,000.

It strikes me that a lot of people are wise after the event. Credit unions weren't the only ones let down by the banks when they invested in bank bonds which, at the time, were regarded as being as safe as houses (there's another story). Many pension funds and investment specialists were also caught out. And I think I'm right in saying that bank bonds were authorised as investments until 2007 by the Financial Regulator.

If I'm reading the various stories right, most credit unions will have a surplus this year and will be able to pay a dividend under the current regulations. Some credit unions want to be able to pay a portion of their dividend out of previous year's surplus, which they have prudently put aside. I understand that credit unions can't touch their statutory reserve, but I don't think any of them want to. They just want to be able to use surplus funds that were put aside in previous years. And they haven't asked the Governemnt for any subsidies.

Compare this to, oh, let's say Anglo Irish Bank. They've lost billions, they are under criminal investigation, they are receiving billions of our money in bailouts. And they're paying top dollar interest rates on savings e.g. 5.5%. Now, whose money are they using to pay these rates? Ours!
 
@catch 22

The sentence is correct. Credit unions as regulated credit institutions are not guaranteed by the government. Guaranteeing a bank is not the same thing as compensating savers in the event of one failing.

People who save with credit unions are to be covered under the Irish Deposit Protection Scheme which is intended to compensate them up €100,000. Laws giving effect to this have not yet been passed.

The financial regulator did not authorise bank bonds to 2007. Bonds of a certain quality were permitted under the Trustee Investment Order – nothing to do with the FR. The FR moved to restrict investments in late 2006 but could not make its guidelines mandatory. It wanted more severe restrictions enacted in legislation but had to settle for what amounted to be a non-mandatory code.

About half of all credit unions will not pay a dividend. They are legally only permitted to pay a dividend from profits this year or where they have set aside profits from previous years for paying future dividends. The matter or statutory or non-statutory reserves doesn’t apply.

“Mr Logue said told the Irish Independent yesterday that credit union legislation expressly forbids credit unions from paying a dividend if they make a loss.
He said it would be against the letter of the law and the spirit of the Credit Union Act for a loss-making credit union to pay a dividend. Dividends, expressed as a percentage, are roughly equivalent to the interest rate individuals receive from a bank when they deposit money. Credit unions declare a dividend at end of their financial year based on the surplus for that year.
Under the law, credit unions can only pay a dividend out of that year's surplus, or from a previous year's surplus if that money was specifically put aside to pay a future dividend.
They cannot pay a dividend out of their reserves. …….Mr Logue said there was "pressure coming from various interest groups" for loss-making credit unions to be allowed pay a dividend by using their reserves.
"We see no benefit in trying to create artificial confidence by paying a dividend out of reserves. It is not prudent and not in the members' interests." http://www.independent.ie/business/personal-finance/investments/loss-makers-warned-not-to-make-dividend-payment-1761128.html
 
Good to know my savings in the credit union are guaranteed up to €100,000.

I notice the top three banks are all paying 0.01% gross on demand deposit accounts, which doesn't amount to a hill of beans. So even if some credit unions don't pay a dividend, there's not much of a difference between nil and 0.01 minus 25%! At least the credit unions offer other benefits to members like life savings insurance.

And of course, there's still the mad situation where a credit union can't pay a dividend from funds they've put aside from previous years surpluses, yet the likes of Anglo (and others) can pay top dollar rates even though they're broke, are getting bailed out by the taxpayer, are under criminal investigation etc. etc. etc.
 
And of course, there's still the mad situation where a credit union can't pay a dividend from funds they've put aside from previous years surpluses, yet the likes of Anglo (and others) can pay top dollar rates even though they're broke, are getting bailed out by the taxpayer, are under criminal investigation etc. etc. etc.

But they're 2 completely different products. As per Creditunion.ie;

What return will I get on my credit union savings?

Every share you hold with your credit union for the year is eligible for a dividend when declared. A dividend is the return on your shares and it is paid by your credit union out of surplus.*

*Past performance is not a reliable guide to future performance.

The amount of your dividend will depend on:

  • The amount of shares you have saved (one share is equal to €1/£1stg).
  • The surplus income available for distribution by your credit union to members.
Only members of your credit union receive a dividend from your credit union. The amount paid to members varies from one credit union to another.


I.e. you weren't guaranteed any return on a Credit Union savings account in the first place.

Conversely, with a bank account (Yes, even Anglo Irish Bank!) you are, as that's what you signed up to.
 
@ catch 22
Yes your money whether in a share account or much rarer deposit account is to be guaranteed under the Deposit Protection Scheme – you will be compensated in the event of the failure of your credit union. The compensation will come from a fund which will be paid into by credit unions and banks and should it run dry it will be topped up by credit unions and banks. It can also be temporarily topped up from the central bank’s accounts. Key point it is not a government guarantee but a scheme backed by the full faith and credit of the state. Furthermore it is not quite clear what happens to netting deposits for example if you have a loan of 50k and a share account of 50k with a failed credit union, your loan may be reduced and you may not receive any compensation for your savings. The Irish DGS is silent on this aspect of what is sometimes called the bankers lien and with credit unions attached savings ….

Irish credit unions are unique amongst developed credit unions in continuing to insist on paying dividends from profits made. Everywhere else has treated dividends and associated share accounts as interest bearing type accounts for decades. US credit unions moved to guaranteeing dividend rates years ago. Canadians and Australians no longer use the structure but rely on deposits. Here it seems some credit unions are barefacedly communicating that their shares have not declined as have shares in the Banks. Of course a share account is still treated as quasi capital in Irish credit unions accounts and not a deposit/liability.

The World Council of Credit Unions international standard targets 70-80% “savings deposits to total assets – not “members capital to total assets” which is targeted at less than or equal to 20%. In contrast Irish credit union “savings deposit to total assets” are less than 3%. Shares which are treated as members capital are 83% of total assets. The Irish ratios are indicative of a movement that cannot compete at near market rates either for savings or loans and remains rooted within a financial model that had its best before date sometime in the late 80's. Many will not survive the next two years as the model is bust.

It is quite something to read the nonsense being peddled by credit unionists who would now have savers believe a dividend is not the same as interest having spent the past while extolling their higher rates when compared with bank demand deposit rates.

To suggest that credit unions should be allowed to raid their reserves to pay a dividend flies in the face of prudential standards - the law is quite clear dividends can only be paid from this years profits or from previous years surplus set aside specifically to pay a dividend in the future.

It is also balderdash for ILCU to suggest credit unions are incurring losses only because of accounting rules – what of equity values, ISTC bonds and the perpetual buy backs at heavily discounted values. And what of bad debt write offs and non-performing loans?

The hold to maturity agrument only holds water if the investment has a cast iron guaranteed maturity value. Then again they are also it seems looking for a Nama type bailout for impaired investments. One of the problems some are contending with is they have previously booked unrealised gains as trading income to support dividend payouts....

Life savings insurance is only of "benefit" when you are dead - to your next of kin. And the access to credit argument is tosh; less than a third of savers borrow from their credit union and many have had to curtail lending as they are illiquid

@TS Thomas : Point of information for rate comparison: A share account is not similar to a demand deposit although treated as on demand – it is in fact a 90 day notice account with the notice waived. In the event of a run on shares credit union law permits a credit union to insist on 90 days notice of withdrawal. And I agree share accounts should carry a consumer health warning along the lines of "dividends can only be paid from profits where made in any one year - no profits - no dividend" It should not come as a surprise to learn that ILCU and others are objecting to the introduction of a voluntary consumer protection code based in part on the argument that credit union members/customers are not consumers - presumably they mean they are to be treated as shareholders. To be kept in the dark and fed a diet of rhetoric.
 
@ catch 22
Yes your money whether in a share account or much rarer deposit account is to be guaranteed under the Deposit Protection Scheme – you will be compensated in the event of the failure of your credit union. The compensation will come from a fund which will be paid into by credit unions and banks and should it run dry it will be topped up by credit unions and banks. It can also be temporarily topped up from the central bank’s accounts. Key point it is not a government guarantee but a scheme backed by the full faith and credit of the state. Furthermore it is not quite clear what happens to netting deposits for example if you have a loan of 50k and a share account of 50k with a failed credit union, your loan may be reduced and you may not receive any compensation for your savings. The Irish DGS is silent on this aspect of what is sometimes called the bankers lien and with credit unions attached savings …Surely this is a matter fro the Central Bank/department of Finance to clarify.

Irish credit unions are unique amongst developed credit unions in continuing to insist on paying dividends from profits made. Everywhere else has treated dividends and associated share accounts as interest bearing type accounts for decades. US credit unions moved to guaranteeing dividend rates years ago. Canadians and Australians no longer use the structure but rely on deposits.
Credit Unions are constrained by the law. A change would require amendment to the Credit Union Act

Here it seems some credit unions are barefacedly communicating that their shares have not declined as have shares in the Banks. Of course a share account is still treated as quasi capital in Irish credit unions accounts and not a deposit/liability. Surely this is just the 'Accounting Equation' at work? Credit Unions have denominated their members' savings as shares from long before equities and share delaing became commonplace and everyday matters.

The World Council of Credit Unions international standard targets 70-80% “savings deposits to total assets – not “members capital to total assets” which is targeted at less than or equal to 20%. In contrast Irish credit union “savings deposit to total assets” are less than 3%. Shares which are treated as members capital are 83% of total assets.
Is this not merely semantics and what real difference does it make?
The Irish ratios are indicative of a movement that cannot compete at near market rates either for savings or loans and remains rooted within a financial model that had its best before date sometime in the late 80's. Many will not survive the next two years as the model is bust.
Why do you say the model is bust? Ceratinly CUs are constrained by legal restrictions on what they can do?Credit Unions that go under may have tried to modernise their model too rapidly, with sophisticated investments in equiti, ISTC bonds etc? But they are in the minority.
It is quite something to read the nonsense being peddled by credit unionists who would now have savers believe a dividend is not the same as interest having spent the past while extolling their higher rates when compared with bank demand deposit rates. Are they not merely stating fact? Why is it nonsense?

To suggest that credit unions should be allowed to raid their reserves to pay a dividend flies in the face of prudential standards - the law is quite clear dividends can only be paid from this years profits or from previous years surplus set aside specifically to pay a dividend in the future.Many credit unions have put undistributed surpluses into reserves apart from Statutory Reserve with the intention of using them in leaner years when they would be needed to top up dividend. what is wrong with now "using" those reserves rather than 'raiding' them?

It is also balderdash for ILCU to suggest credit unions are incurring losses only because of accounting rules – what of equity values, ISTC bonds and the perpetual buy backs at heavily discounted values. Many CUs are writing down their investments in CMS?Perpetual Bonds on a monthly basisi on the instruction of the regulator. This is regardless ofd any prospect of banks calling these bonds at future dates. The rate of write off suggests that these CUs will be able to proceed next year or certainly the following year on the basis that thos e bonds have been almost entirely written off. They will then be able to concentrate on core business, lending and investing in safe deposits.
And what of bad debt write offs and non-performing loans? This is the core business that CUs have been dealing with for decades. Some will experience a better delinquency record than others. Indeed, rumour has it that a small number of CUs are goiung to be in big trouble with bad debts, partly from property speculation. Many of these will turn out to have been badly run over the years, with loose control and a lack of supervision.

The hold to maturity agrument only holds water if the investment has a cast iron guaranteed maturity value. Then again they are also it seems looking for a Nama type bailout for impaired investments. One of the problems some are contending with is they have previously booked unrealised gains as trading income to support dividend payouts....It will be interesting to see how their auditors allowed them to get away with that!!

Life savings insurance is only of "benefit" when you are dead - to your next of kin. And the access to credit argument is tosh; less than a third of savers borrow from their credit union and many have had to curtail lending as they are illiquid. Many more CUs are liquid than those who are illiquid. Access to credit is not 'tosh'. CU sare now very often the only game in town. It will, however, present a challenge to thos e CUs to now lend on a prudent basis.

@TS Thomas : Point of information for rate comparison: A share account is not similar to a demand deposit although treated as on demand – it is in fact a 90 day notice account with the notice waived. In the event of a run on shares credit union law permits a credit union to insist on 90 days notice of withdrawal.
In practice this is a meanngless distinction.
And I agree share accounts should carry a consumer health warning along the lines of "dividends can only be paid from profits where made in any one year - no profits - no dividend"
This is clear to members from the literature thye recive when they join. Most people do not join CUs for the rate of return.
It should not come as a surprise to learn that ILCU and others are objecting to the introduction of a voluntary consumer protection code based in part on the argument that credit union members/customers are not consumers - presumably they mean they are to be treated as shareholders. To be kept in the dark and fed a diet of rhetoric.I am not sure vthat this is an accurate statement but in my view members of CUs should have the same rights as consumer s and bank customerst!!
 
Slim
Debate on credit unions is frequently sidetracked by a rhetoric that demonstrates a serious lack of thought or fact based discussion. The overwhelming majority of credit unionists have few financial qualifications and their only experience is the small works of their local credit union. Their view is formed through constant repetition of doing things as they have been done for the past 50 years. Credit unionists and their human systems have become skilled at incompetence. This is not to criticise, merely to state a position. It explains why since inception not one major core product or service development has been successfully executed. The products and services offered remain the same as they were 50 years ago. No innovation and no change – why?

My point on the DGS was made to illustrate that few if any credit union directors, managers are aware of what deposit insurance is and what its objectives are. If they were they would have objected to the states inclusion of credit unions in the banks scheme and would have insisted on a properly designed credit union system as found in the US and Canada. But that opportunity has been lost as the ILCU fought and lost in its demand for a private scheme, it did not have the competence of resources to manage. In terms of what is called the financial safety net, Ireland has the most ineffective system in the developed world. It is wholly inadequate and one of the reasons why the sector is in crisis.

Credit unions are a unique form of banking. This is crucial to understanding what their business is and how the Irish model has become an aberration and why it is now bust. There are three distinct models for credit unions, found across the world, depending on the maturity of the sector. The first is a finance company funded through shares, leveraged off deposits where “interest” is a return on a share in profits. The second is a savings and loans specialist, funded by deposits with a broad line of savings and loan products, tracking the market on rates and the third a full service co-operative banking service offering savings, transaction accounts, small business services, mortgages, credit cards, life insurance, investments and so on.

The Irish model has been stuck in the finance model for the past twenty years and is at the root of why credit unions cannot pay a dividend this year and why over 100 will fail within two years. Some are trying to make the shift to savings and loans but cannot do so on their own – they are missing the central resources found elsewhere.

Stuck with the finance model, they haven’t been making enough loans for over ten years. As costs have escalated margins have shrunk and the core business of savings and loans is loss making. Some have no chance to reverse this trend and have become what the regulator and others call savings clubs. Income is entirely interest income – fee income from the few additional services provided is less that 1% of total income. Contrast this with a movement that did change, Australian credit unions are full service with interest income comprising 70% and fee income 30%.

The reason why this has happened is in credit unionist thinking and response to their customers. Because the emphasis is in on shares and maximising the return to shareholder (dividend) credit unions have been managed to maximise profits to finance high dividend payments. Had credit unions competed close to market rates in the past ten years they would have retained an additional €300m in reserves which should have been invested in improving products, services and expanding lending activity. But they didn’t. Instead they remained fixated on share balances and were sucked into what became an investment bubble, that when it burst lost €500m. In short the ill-advised strategy promoted by the ILCU cost the movement close onto €800m in foregone financial reserves without adding the money written off on IT projects etc.

So why didn’t credit unions away from the finance model to savings and loans specialist or full service co-operatives. The answer lies in the insistence on retaining independent autonomy and innate inability to co-operate. The paradox is Irish credit unions have not learned how to co-operate with each other.

Yet they have a marvellous opportunity to rebuild their business and begin lending again – thing is they will not be able to do this on their own and need help badly. There is only one sponsor with the pockets and power to insist on change and that is government – but what are the chances of it moving from its position where it considers credit unions less than systemically important and is maintaining the most ineffective financial safety net in the modern world.
 
....and would it be possible to stop 'shouting' by reverting to the standard font type and size that we all use?
 
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