It reflects the general trend across the financial sector of increased savings and deposit levels throughout the pandemic.

In its latest Financial Conditions of Credit Unions Report, the regulator identifies the growing gap between savings and loans as a continued key challenge for credit unions.

The report, the seventh in the series, says reserves and liquidity levels had remained relatively stable across the sector during the pandemic.

However, a number of credit unions face ‘sustainability challenges’, it warns.

That has seen a number of high profile collapses of credit unions as well as a spate of mergers across the sector in recent years.

The report said that latter trend continued in 2020 with two thirds of credit unions now having assets of at least €100m, up from just under 60% in 2019.

The number of credit unions with assets of less than €40m also continues to decline.

Savings levels on the rise

Total savings across the credit unions stood at €16.3 billion at the end of September.

That was up 7% from the €15.3 billion at the same time last year.

Average savings per member increased from €4,400 to around €4,700 over the period.

A number of credit unions have put deposit caps in place as they are being negatively impacted by low interest rates and by the requirement to put 10% of its assets aside in reserves.

The low interest rate environment saw the average return on investments declining further this year to 0.7% from 0.9% at the end of September in 2019.

Total investments increased to €13 billion in 2020, reflecting the savings inflows.

Declining lending volumes

Accentuating the problem, Covid-19 impacted credit union lending, the report found, in terms of both a reversal in lending growth and a small increase in reported arrears.

Increasing costs and declining income saw the total cost income ratio increasing from 68% five years ago to 88% at the end of September this year.

That represents the highest ratio in five years.

Personal lending continues to make up the bulk of new lending at credit unions with loans for house purchase and business credit representing only around 2% of new lending in each category.

“Overall, while the sector has shown a degree of resilience in 2020, the economic outlook is uncertain with Covid-19 and Brexit impacts potentially yet to be fully realised,” Registrar of Credit Unions Patrick Casey said.

“A continuation of the trends identified in this report could see many individual credit unions facing sustainability challenges over the medium term. Credit union boards must therefore focus on the risks that flow from the continuing imbalance between savings and loans,” Mr Casey said.

Mr Casey appealed to credit unions to focus on evolving their business models by using available lending capacity to serve members’ needs ‘on a safe and sound basis’.

“This offers a path to sustainability, which puts members’ savings to a productive economic use in line with the goals of credit unions, and helps ensure an ongoing funding need for growth in members’ savings,” he said.