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Irish Central Bank revamps credit union lending rules

Out-Law News | 26 Nov 2019 | 12:40 pm | 2 min. read

The Irish Central Bank has published new regulations which will allow credit unions to undertake increased longer-term lending, with additional capacity to be extended to larger credit unions meeting certain requirements.

The changes, which take effect from January 2020, follow a consultation on changes to the lending framework for credit unions.

The new regulations remove the current lending maturity limits, which cap the percentage of credit union lending which may be outstanding for periods of greater than five and 10 years. Maturity limits will be replaced by new concentration limits, on a tiered basis, for home mortgage and business loans, expressed as a percentage of total assets.

The bank said the new regulations provide credit unions with the financial strength, competence and capability, and flexibility to undertake increased longer-term lending.

Financial services expert Lisa Matthews of Pinsent Masons, the law firm behind Out-Law, said: "The redefining of commercial loans and the changes to the maximum limits for home mortgage and business lending is significant for credit unions, SMEs and first-time buyers and is likely to result in increased competition in the Irish financial services market."

The new regulations set a combined concentration limit for house and business loans of 7.5% of total assets for all credit unions. Larger credit unions with an asset size of at least €50 million that meet regulatory reserves qualifying criteria, can set a 10% concentration limit if they notify the Central Bank in advance. Credit unions with total assets of at least €100m can utilise a 15% concentration limit, subject to approval from the Central Bank.

The maximum loan maturity limit for secured loans has been extended from 25 years to 35 years.

The revised regulations also redefine 'secured loan' as "a loan that is secured by a mortgage, charge, assignment, pledge, lien, or other encumbrance in or over any asset or property, but shall not include unsecured guarantees by third parties".

Meanwhile 'commercial loans' will be redefined as 'business loans' in the regulations, and will include loans made to micro, small or medium-sized enterprises for the purpose of a person’s trade, business or profession.

The Central Bank published a feedback statement (71 page / 1.4MB PDF) following its consultation setting out responses and the changes made. It said it had kept most of the proposals made in the consultation paper unchanged as a result of the consultation and discussion with stakeholders.

The Registrar for Credit Unions, Patrick Casey, outlined that it was important that the lending framework remained appropriate for credit unions taking account of their risk management, capabilities, expertise and financial resilience.

"The proposals are grounded in the Central Bank's statutory mandate, which is to ensure the protection by each credit union of the funds of its members and maintenance of the financial stability and well-being of credit unions generally. Where credit unions wish to undertake increased house and commercial lending, it is important that they understand the risks involved," Casey said.

St Raphael's Garda Credit Union has expressed its intention to become the first credit union to take advantage of the new regulations. "We expect to be the first credit union to return to the mortgage market" said Claire Byrne, chief executive of St. Raphael's.