Strong loan book growth, lower cost to income ratios and a better return on investments boosted Credit Union surpluses in 2023, according to RBK’s 12th Annual Credit Union Benchmarking report. The report, which summarises the findings of a survey of Credit Unions undertaken in March/April 2024, shows that operational resilience will be the top challenge in the next 24 months.
2023 saw Credit Unions continue to build on the achievements of recent years. Reserves are stable and credit quality remains good although arrears are beginning to trend upwards as more borrowers face cost of living pressures. Concerns about inflation, which were front of mind this time last year, have eased. Operational resilience is now the top perceived challenge for the next 24 months with IT and cybersecurity viewed as the top risk.
Commenting on this year’s report, RBK Partner Ronan Kilbane said:
“Credit Unions enjoy a strong reputation and are well placed to grow their market share, particularly in the mortgage and SME lending markets. Loan book growth was strong last year—and remains a priority—but with cost of living pressures starting to erode the repayment capacity of some borrowers, proactive monitoring and early engagement will be necessary to ensure adequate provisioning levels are maintained.”
“Concerns about viability are still evident. Almost half of this year’s survey respondents plan to consolidate a merger this year with further consolidation likely. The Credit Union Amendment Act 2023 creates additional opportunities to collaborate, share resources and generate economies of scale. Other priorities for the coming months will need to include staff training, KPI reporting and managing the risks and opportunities associated with climate change and ESG.”
Key Findings:
- Loan book: Strong demand for Credit Union loans is reflected in this year’s 31% average loan to asset ratio, up from 29% in 2022 and 27% in 2021. However, while long term lending is growing, capacity in the sector remains under-utilised.
- Reserves: Rising ECB interest rates in 2023 contributed to a higher returns on investments. This, along with an improved return on assets, is helping Credit Unions to maintain stable reserves.
- Costs: Cost to income ratios have fallen but early stage arrears are beginning to trend upwards as the rising cost of living erodes the repayment capacity of some borrowers.
- Operational resilience: Embedding operational resilience is perceived as the top challenge for the next 12 months.
- Human Resources: Skills shortages and inflation are continuing to drive up staff wages. Two-thirds of this year’s survey respondents plan to increase wages in the next 12 months.
- Climate Change and ESG: Just over a quarter (26%) of the Credit Unions we sampled are proactive when it comes to reporting specific ESG and climate related KPIs. This is an area where greater focus is needed.
- Products and Services: More than three-quarters (77%) of survey respondents have produced new products and services to address concerns about relevance and competition.
- Mergers & Viability: Ongoing consolidation resulted in the number of Credit Unions falling below 200 for the first time last year. 48% of our survey respondents plan to consolidate a merger this year. There are still concerns in certain parts of the sector with regard to viability over the next 24 months.
- IT and Cyber Awareness: IT and cybersecurity are viewed as the top risk. Staff awareness of cyber risks is generally rated good as evidenced by a tangible reduction in known cyber- attacks in the current year.
A copy of the full report can be accessed here:
