The Registrar of Credit Unions, Anne Marie McKiernan was before the Oireachtas Committee on Finance, Public Expenditure and Reform on 16 December and her opening statement has some clear insights (from a regulatory perspective) into the challenges facing the credit union sector, including;
– fall in core loan income as a result of a 42% reduction in the sector loan book from 2008 to date.
– loan to asset ratio reduction from 52% to 28% from 2008 to date;
– age profile of the membership base,
– the continued increase in the cost to income ratio within the sector, and
– the limited potential of the sector to benefit from the wider economic upswing.
In relation to mergers, the Registrar stated that “most mergers provide an important starting point to address financial and operational weakness and to update the product and services offerings” and she also “urges the sector to consider how to leverage its community advantages and its excellent and trusted brand to become more relevant to a new generation of member while pricing appropriately for its risks and its services“.
In a post earlier this year, understanding your business model, we identified three areas requiring credit union attention, in order to support the business model into the future, namely;
- New income sources: With non-interest income (Investment income) reducing, continued low loan demand and a reluctance of the sector to reprice its loan book to market levels (within the maximum pricing level of 1% per month), Credit Unions will need to explore alternative sources of income to include the curtailment of free transactions (transaction based fee structure, i.e. members control fees by bringing more of their business to the credit union) and growth in non-core income (e.g. insurance products).
- Cost base: With CUs cost / income ratio running at a premium of over that of the banks, targeted approaches for on-going efficiency will be required.
- Member facing technologies: The ability to deliver a e-services solution reflecting changes in behaviour of member demographics is a key corner stone for sustainability and competitiveness within the financial services sector. A successful e-services platform will reduces costs in the long run (paper originated transactions has a higher cost than e-based originated transactions), and facilitate higher volumes of transactions to be completed within the same time-frame.
For a full transcript of the Registrar’s statement, please click on the link below.