Credit Unions to Merge or Not?
We act for many Credit Unions nationwide and there has been a lot of talk in the last few years regarding mergers. There have already been a number of mergers between Credit Unions and more are expected. Indeed, the government announced in February of this year that a levy would be imposed on all Credit Unions to create a €30 million stabilisation fund over the next six years.
Additionally, Finance Minister Michael Noonan has made available €250 million for the restructuring of the Credit Union Sector ahead of the new capital requirements that come into effect in 2015. Essentially, from this year all Credit Unions will be required to hold reserves equal to 10% of total assets.
So how does a Credit Union avail of this stabilisation fund? Firstly, a Credit Union must have minimum reserves of 7.5% and secondly has to be in the opinion of the Central Bank a viable entity.
So what is a viable entity? It’s been noteworthy in wake of the Berehaven Credit Union collapse that the Central Bank not only looked at the solvency of the Credit Union from a balance sheet basis but also from a cash flow basis. In other words, Berehaven experienced huge liquidity problems where it was restricted in its lending so it could not grow its business and where it had made too many ill-advised loans.
So what is the current position in the Credit Union Sector in Ireland? At the end of last December there were 390 Credit Unions in Ireland with total assets of just under €14 billion. Of these 195 have assets of less than €20 million, 167 have assets of between €20 and €100 million and 28 have assets of over €100 million. Unfortunately, it is believed there are 20 Credit Unions with a total deficit of €11 million which will have to be closely monitored before next year.
A credit union merger involves a lot of legal issues from HR to property and securities review and advice should be sought as soon as possible if it is something a Credit Union is embarking upon.
Credit Union Department