Credit union will resist any cap on savings

A cap on the amount members are allowed to keep in savings is not “at the moment” being considered by Mullingar Credit Union, even though some other credit unions across the country have had to bring in limits.

“It’s an area we have to keep a close eye on and we will have to take appropriate action if savings continue to rise at the same level as in the last year or two,” the outgoing chairperson of the credit union, Paul Isdell, told members at their AGM, held online on Wednesday.

Credit Union manager Tom Allen explained that the credit union would be reluctant to introduce a cap, but that it might become necessary: “For 60 years, we’ve tried to develop the credit union… to a level where it can be a viable alternative to other financial institutions. So the view here is that introducing savings caps – particularly at levels that are seen in some other credit unions like €15,000 and €20,000 and €25,000 – severely damages the ability of the credit union to provide a service, so it’s not something that the board would want to do if it can be avoided.”

The credit union generated a surplus of €2.8m over the course of the year. “The business of credit union is relatively straightforward,” Paul Isdell said, stating that it takes deposits from members, and loans prudently to fellow members. However, over the last decade, the growth in savings in Mullingar Credit Union – and indeed, in the wider credit union movement – has far outstripped the growth in loans, which, in today’s environment has created a number of problems.

“First of all, the excess savings that we don’t lend out, we have to invest and investment returns for the credit union are very, very low. And in some cases, we are leaving money on deposit with other banks and having to pay a negative rate – in other words, getting charged for leaving that money there at the moment,” Mr Isdell said.

On top of that, the Central Bank requires the credit union to keep its ratio of reserves to savings at 10 per cent: “So for every million euro of extra savings, €100,000 has to be transferred to reserves.”

In the past year, savings increased by almost €40m, but the surplus of €2.8m was not sufficient to cover the reserves requirement of €4m, as a result of which the board had decided not to recommend a dividend or interest rebate.

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Mr Isdell said he was happy to report that loans had increased, and the interest provides the credit union with about two thirds of its income, demonstrating how critical it was to the institution to have a strong, prudently-led loan book.

On a less positive note, Mr Isdell said the board had to take a hard decision to reduce the life assurance available to the members’ savings. The maximum life insurance on savings was €12,700 and that has now been reduced to €3,000. “No change has been made to the life insurance in relation to loans,” he added.

Mr Isdell extended best wishes to three retiring board members, Seamus McLoughlin, James Marshall and Henry King, whose contribution could not, he said, be overestimated. He also welcomed their replacements, Mark Rafferty, Eugene Dunne and Brendan McGeogh.