In response to queries from the Sunday Business Post, CUDA shared the following commentary which informed the article that appeared on Sunday 28th June ’20:
Covid-19 Recovery Bond:
Credit Unions support the ordinary saver in accordance with their statutory object – to promote thrift among its members by the accumulation of their savings. This will continue, indeed funds are flowing into credit unions as they are highly trusted.
As we have seen recently the Government had to source funds to meet the significant costs of COVID-19 economy recovery stimulus, more will be required and credit union members can be a source of some of that financing, especially where it is linked to social or environmental projects which are aligned to the credit union ethos.
Related to this, whilst credit unions do currently invest in Irish Government bonds, they are not distinguished from any other asset that the credit union holds and therefore requires them to hold reserves equivalent to at least 10% of the value of that asset.
This seems high, but rather than implement a full risk weighted capital model for credit unions we propose that a such a Recover Bond for credit unions to invest members funds into would attract a lower capital requirement, reflecting also that the risk is price into the bond. This could be lower than 5%.
Alternatively, such a bond could be made available directly to savers and distributed by Credit Unions and possibly Post Offices. We believe retail investors would welcome the opportunity to support the Government and diversify their risk.
Creativity will be required and the solutions will not always be found by thinking within the framework in which the challenges arose.
Lending:
Credit Unions now have a range of loans to meet members’ needs – personal loans [e.g. car, holiday, lifestyle, emergency], home improvement loans, home loans, Community loans, and business loans.
Some credit unions already have this full suite of loan services, however many, as part of their strategic planning, are focusing on diversifying lending to serve the Micro, Small and Medium enterprise segment, an important segment of the credit union membership.
Such loans will be repaid from the sustainable trading cashflow of the borrower, there will be both unsecured and secured options made available.
The CUDA Business Lending Framework will support business lending by providing policies, process and technological supports. We have used this approach successfully for many years in mortgage lending.
Role of Minister for Finance & the CBI:
Despite the great progress made in recent years by credit unions as they continuously develop their business model through digital services, growing their range of loan services, training and governance solutions, COVID-19 has had an impact, as it has on all lending institutions.
With new loans not being drawn down during the ‘lock-down’, so loan interest, the primary source of income for credit unions is reducing. This reduction in income will impact surpluses and therefore reserves.
Fortunately credit unions are very well capitalised, with the sector average in excess of 16%, however, against a backdrop of profound uncertainty, both now and as we learn to live with COVID-19, CUDA’s approach has been to seek insight to Policy Makers intentions, which in turn assists credit union decision making in relation to supporting members when they need it most.
We have sought assurance of a pragmatic interpretation when regulators review such decisions to ensure they will be reflective of the circumstances in which decisions were made and not based on the benefits of hindsight or revised standards. We value our constructive dialogue with the Central Bank in this regard.
We also welcome the CUAC consultation process and look forward to seeing how legislators can enable credit unions to play a full role in Ireland’s COVID-19 recovery and some of our country’s big issues for future generations, like pensions, housing and climate change.