Central Bank of Ireland Boosts Credit Union Lending Limits

The Central Bank of Ireland has announced significant changes to credit union regulations, aimed at increasing the lending capacity of the sector. This new framework will allow credit unions to offer mortgages and business loans at much higher limits, reflecting a shift in the way these institutions operate.

Under the existing regulations, credit unions could only lend a combined total of 7.5% of their total assets for house and business loans, with business loans capped at 5%. The updated guidelines, effective from September 30, 2023, will separate these categories, allowing house lending to reach up to 30% of total assets and business lending to a maximum of 15%. Overall, the potential lending capacity for credit unions is projected to increase from €2.9 billion to €9.9 billion.

This regulatory update stems from a comprehensive review of the lending practices of credit unions and follows extensive public consultation. According to Mary-Elizabeth McMunn, Deputy Governor with responsibility for financial regulation at the Central Bank, these changes are intended to enhance the sector’s ability to provide essential financial services to their members.

“The updated framework aims to allow credit unions the ability to sustainably develop into the future — within the appropriate guardrails the limits provide and in the long-term interests of their members,” McMunn stated. She emphasized the importance of a phased and prudent approach as credit unions expand their lending activities.

As credit unions prepare to implement these new regulations, they are expected to strengthen their skills in risk management and financial expertise, ensuring they can meet the demands of increased lending.

The Irish League of Credit Unions (ILCU), which represents approximately 90% of credit unions in Ireland, welcomed the reforms as a “major step forward for the sector.” Chief Executive David Malone noted that the changes present unprecedented opportunities for credit unions to better serve their communities and members.

Similarly, Helen Carbery, Chief Executive of the Credit Union Development Association, highlighted that the flexibility introduced by the new limits will enable credit unions to better meet the financial needs of their members while enhancing their overall sustainability.

The value of mortgage lending by credit unions has been on the rise. In the year ending March 2023, credit unions affiliated with the ILCU experienced a remarkable increase in total mortgage lending, which surged by 34% to €632 million. This rise reflects a growing trend, with mortgages comprising 10.4% of the total loan book, up from 8.5% in March 2022 and 5.7% in March 2021.

As the sector adapts to these new lending limits, the Central Bank of Ireland remains focused on ensuring that credit unions operate responsibly and sustainably, safeguarding the interests of their members while fostering growth in the lending market.