Central Bank Publishes Credit Union PRISM Supervisory Commentary Report

• Fourth Credit Union Supervisory Commentary Report published - provides overview of risk issues identified.
• Evidence of recurring issues in fundamental risk areas including credit underwriting.
• Strong governance and risk management necessary given sector’s stated desire to move towards increased home and SME lending.

The Central Bank has today published the fourth edition of the Credit Union PRISM Supervisory Commentary Report (PDF 0.96MB). The purpose of this Report is to inform all credit unions on the nature and type of risks identified during Central Bank 2019 supervisory engagements, and related supervisory expectations in addressing such issues.

The Report provides an overview of the specific risk categories where 550 individual issues were identified in credit unions during 2019 PRISM engagements. The Central Bank’s analysis covers risks across governance, credit, operational risk, strategy/business model risk and investment, liquidity and capital risk.

Weaknesses were evident in a number of credit unions in each of the risk categories, including governance and credit underwriting. This is concerning at a time when the sector faces many challenges and when many credit unions’ have signalled their intent to change business models to allow for increased home and SME lending.

The Report is intended to be a practical reference tool for all credit union boards and management teams to support enhancement of governance, risk management and operational frameworks. The Central Bank expects all credit unions to consider and act on, the findings presented as part of their own management and mitigation of ongoing risks.

Registrar for Credit Unions, Patrick Casey, said “Given existing commercial challenges facing credit unions and additional challenges presented by COVID-19 and Brexit, it is critical that credit unions maintain strong core prudential foundations. Strong governance, risk management and operational capabilities enable credit unions to provide core services to members, while they seek to undertake prudent business model change.

“We acknowledge that some credit unions have made progress towards addressing prudential concerns. However, it is a concern that we continue to identify weaknesses in core areas including credit underwriting – clearly there is still more work to be done.  At a time when so much attention centres on lending capacity, it is essential that credit unions address the fundamental weaknesses identified in these areas.”

“Lending regulation changes introduced in early 2020 provide additional lending capacity. To be sustainable, credit unions must demonstrate that they have the competence and capability to avail of this additional lending capacity.”

Notes

• The Probability Risk and Impact SysteM^TM (PRISM^TM) is the Central Bank’s risk-based framework for the supervision of regulated firms.
• Previous Supervisory Commentaries are available on our website.