Credit Unions show Positive Loan Book Growth but is enough being done to Optimise this Growth?

Loan books of Credit Unions continue to show strong levels of growth with the annual average loan book growth being 9% for Community Credit Unions and 12% for Industrial Credit Unions respectively. However, there continues to be a significant disparity between the best and worst performing Credit Unions.

According to results published today by RBK Chartered Accountants, 74% of Credit Unions have no viability concerns over the life of their strategic plans. This is an improvement of 10% compared to last year and indicates stronger financial performance and continued loan book growth in 2018. In addition, 57% of survey participants have no plans to merge their Credit Union within the next three years, compared to 15% this time last year.

However, more than a quarter (26%) of Credit Unions still continue to have concerns about viability despite the mergers that have taken place over the last five years.

The findings are published in RBK’s ninth annual Credit Union Benchmarking Survey.

Commenting on the results, Colm O’Grady, RBK Credit Union Partner said, “A myriad of factors including a tightening labor market, low investment returns and an increasingly more complex and regulated business model is putting pressure on Credit Unions to grow the income base. The loan to asset ratio is improving but there is still plenty of scope to increase this. Share growth needs watching - share caps and reducing insurance benefits have to be key strategies to manage this.”

Key Findings:

  • Loan book: Overall there is evidence of slightly slower loan book growth during 2018 with a disparity between the lowest and best in class growth rates achieved in both Community and Industrial Credit Unions (a 45% gap between lowest and highest growth rates in Community Credit Unions and a 17% gap in Industrial Credit Unions).
  • Mergers: Following the consolidations of recent years (Central Bank figures show that the total number of Credit Unions fell from 396 in 2013 to 263 at 31 March 2018), our latest research reveals a sharp increase in the percentage of Credit Unions who have no plans to merge during the next three years (57% in 2018 compared to 15% in 2017). In a related finding, 74% of this year’s survey respondents have confidence in their Credit Union’s viability.
  • Board Effectiveness: 52% of our sample felt that the Board of Directors is between 60% and 80% effective while 10% of survey respondents consider their Board to be fully effective.
  • Regulatory Compliance: A trend towards increased outsourcing of regulatory functions appears to be emerging with outsourcing of compliance and risk management up by 11% and 8% respectively. As was the case last year, all Credit Unions who participated in our benchmarking survey outsource their internal audit function.
  • Human Resources: There is a sharp increase in the percentage of respondents citing management skills and knowledge as a barrier to embedding their HR framework, up from 26% in 2018 to 48% in 2019. However, on a more positive note, management availability and employee engagement have improved.
  • Dividends: Only 3% of Credit Unions did not pay a dividend in 2018. Rates of return above 0.125% mean that Credit Unions are giving consumers a better return on savings than banks.
  • Loan Types: Home improvement loans continue to be the fastest growing loan type (41%), up 7% on last year. Car loans are the second fastest growing loan type (25%), down 3% on last year.

The Credit Union Benchmarking Results were launched at RBK's Annual Credit Union Conference held in Johnstown Estate on 1st May.

A copy of the Credit Union Benchmarking Results can be downloaded here.

Ronan Kilbane

Audit & Business Advisory Partner

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