“Disruption and innovation, combined with good governance and risk management, is critical for credit union sector sustainability” – Patrick Casey, Registrar of Credit Unions

• Restructuring and business innovation while disruptive are important for sector sustainability
• Good governance and risk management are critical to managing through disruptive change
• As credit unions evolve their business model, they should avail of the lending capacity provided

Registrar of Credit Unions, Patrick Casey, addressed delegates at the Credit Union Managers’ Association virtual Spring Conference today.

In his remarks, Mr Casey highlighted that; credit unions at a sector level have maintained a strong reserve position and managed to generate a surplus in the year to 30 September 2020. However the pandemic has accentuated commercial challenges facing credit unions, leading to a growing gap between savings and loans across the sector.

Mr Casey noted that restructuring and business model innovation have an important role to play in the sector’s sustainability. Restructuring provides strategic transfer solutions for weaker credit unions, enabling affected members to gain access to a wider range of services provided by stronger, larger credit unions. It also offers growth opportunities to build scale and reach for larger credit unions.

He highlighted that advances in technology are bringing rapid and transformative changes to financial services. “All users of financial services, including credit union members, expect innovation to offer them benefits as their needs evolve. Whilst others are embracing the process of innovative business model change, it has yet to gain real traction in the credit union sector.“

Mr Casey also noted that credit unions were not yet utilising additional lending capacity provided by the Central Bank last year, with only one credit union applying for additional lending capacity at 15% of total assets “While there continues to be a lot of sector commentary on long term lending, 2020 only saw an increase in house and business lending of c.€36 million and c.€2 million respectively”. This raises questions on the robustness of credit union evaluation of credit demand.

Mr Casey also outlined the Central Bank’s priorities in relation to credit unions for 2021, which include:

• Strengthening core foundations in credit unions, particularly governance and risk management
• Supporting the identification, development and delivery of sustainable credit union transfers
• Implementing the proportionate regulatory framework for credit unions, following extensive changes concerning credit union lending and investment

Concluding his remarks, Registrar Patrick Casey said:

“Now is the time for larger credit unions in particular to lead the process of business model change and innovation, including using the increased lending capacity made available, to serve members’ needs. This course of action offers a path to sustainability. It will ensure an ongoing funding need for growth in members’ savings, and will help to mitigate the imbalance between savings and loans. Strong governance and risk management within credit unions are critical to managing the disruption arising from restructuring and business model change and innovation.”