Credit Union (Amendment) Bill 2022
Full Transcript:
I welcome the opportunity to speak on this Bill. I find myself in agreement with much of what Deputy Shortall has said. We have long been proponents in the Green Party of a public banking model. We have to realise that retail banking does a particular job and is structured in a particular way, but the model it follows is profit-driven, as I think the banks would acknowledge. It may not be the model we need in order to provide for communities as we should, or to make provision for SMEs in particular. This Bill helps to broaden our understanding of credit unions. It might move us towards a public banking model along the lines of the Sparkasse model in Germany, which would be welcome. Maybe our post office network has a role to play in that in the future.
Our retail banking model does what it does very well but there are areas it does not do well. SMEs are a good example. We have lost much expertise in terms of local knowledge and decision-making on loans being made at a local level. That was the backbone of much of the financial provision for SMEs in the past. SMEs are the backbone of the Irish economy and society. They employ over 1 million people and that represents two thirds of the total number of people employed in the enterprise sector in the State. We have 250,000 SMEs in Ireland. That is a huge number of institutions and small businesses in our communities. They are people we all know well. Maybe they do not have access to appropriate credit. There is clearly an unmet need in the provision of lending to SMEs in Ireland.
The review of retail banking, which was published at the end of last year, highlighted that the credit union sector is well placed to compete at scale, given the strength of its brand, its locations across the State and its capital and deposits. Credit unions, perhaps as part of a wider public banking model, could form the basis of much-needed additional SME lending. According to the 2019 Indecon report on public banking in Ireland:
Despite the overall levels of new lending there has been a decline in the application rates for bank finance by the SME sector. Application rates for bank finance were 35% in March 2014 and declined to 20% by September 2018.
That clearly shows a trend in the market. Since then, I welcome the new lending regulations introduced by the Central Bank, which increased credit unions’ capacity to provide up to approximately €1.1 billion. The Irish League of Credit Unions, ILCU, has long called for regulations to enable credit unions to increase their lending ability. Last year, it stated credit unions have been limited to just 3% of the mortgage market and less than 10% of the SME loan market by strict lending rules. I have mixed feelings about the mortgage sector. We should be cautious about how deeply we want credit unions to be invested in that market. It has shown volatility in the past.
The deputy CEO of the ILCU, David Malone, stated:
“Specifically, mortgage and SME lending is limited to a combined maximum of 7.5% of total assets for most credit unions. For example, a credit union with assets of €70m and taking an average mortgage of €350,000, can only offer 15 mortgages under the current limits, exclusive of any SME lending. If they have SME lending then the number of mortgages they can offer reduces accordingly within the strict 7.5% lending limit.”
The launch of the credit union approved housing body fund by the Central Bank in 2021 was positive. I hope we see it succeed in delivering much-needed housing. We all hope it will succeed in that regard. The ability of credit unions to lend in other cases is still restricted. We need to open this up to allow credit unions to prosper. The Bill does some of that. I will reference a specific example where I would love to see credit unions become involved, whatever about by reservations about mortgages. I would love to see them become involved in green mortgages, that is, the idea of providing low-cost loans for people to engage in energy retrofitting their homes. Credit unions are perfectly matched for this kind of activity, because one is talking about money within the community improving the housing stock within the community and, in fact, increasing the wealth within the community, as we send less and less money out of it for fossil fuels. One ends up with warmer, healthier and safer communities. It is not quite a peer-to-peer lending model, but it is the idea that we are sharing the wealth within our communities. The high tide lifts all boats. I am always conscious, in that phrase, that not everybody may have a boat, but let us leave it apply as it is.
We could get a mechanism in place for green mortgages, whereby we can de-risk the money for the people lending it in order that it can be offered out on loan at very low interest rates. I dearly wish to see us drive the interest down, as low as possible, in order that people can afford to take on and borrow that money and that the money they are saving on their energy bills goes a long way towards replacing the cost of borrowing.
We do not speak about it often, because of the context of the current cost-of-living crisis but, post Covid, we have a wall of savings. Many people in our society are to the pin of their collar in affording their energy costs, but many others are doing well. The CSO has reported that Irish households held approximately €150 billion in deposits last year. A great deal of that has been saved in credit unions, but a problem arises when the credit unions cannot lend this money, due to the lending restrictions that are in place. The minimum reserve ratios make it tough for credit unions to expand their lending. It is currently approximately 10%, higher than in other jurisdictions and much higher than it is for banks in Ireland. It does not make sense to treat small credit unions in the same way as larger credit unions. This is not a one size fits all. The largest of our credit unions has €500 million in assets.
I am not advocating for a one-size-fits-all approach to the credit unions. When equivalent rules for banks are based on risk, the principle of risk applying here should be applied to credit unions in the same way it is applied to banks. A co-operative model, which is what we see in the credit union, does not for one second mean we are stuck in the past. We have seen a move away from the co-operative movement throughout our society and not just in banking. We have seen many experiments in moving away from co-operative unions. We are going backwards. We are going back to the future. We realise the co-operative model has great strength and flexibility. We have seen that in the case of credit unions that are banding together to form shared entities, in order that they can improve the quality and range of offering for their members.
We know that recently hundreds of credit union members have been able to access current accounts and debit cards, after 16 credit unions came together to develop that offering and, in fact, credit unions have been able to do that at a lower cost than the retail banks. The bank charges are in and around €4, which is less than many of the retail or pillar banks will be able to offer. They should be encouraged, rather than restricted. There is a role in our post office network, as well. It might be a step beyond what we are looking at in this Bill, but we have an extremely valuable network there. We have trusted institutions and postmasters who are very well known within their communities.
The ILCU expressed concern at the exclusion, by the Central Bank, of many community-based credit unions from offering those debit card services to their members. We need that more and more, especially as the retail banks are beginning to step out of our small towns. Let us have the capacity and the ability for the credit unions to step into that space as the retrenchment happens. Credit unions are doing their best under current regulations, but they cannot do much more unless these are changed. They have shown considerable willingness and desire to change, which will form the basis of banking operations in many towns and villages throughout the country. It can be a starting point for the move to a public banking system that we in the Green Party have long espoused. That is where we should be going. The Bill takes several important steps to move us in that direction. I very much welcome the provisions.
