The Central Bank published new amending regulations on 22nd December 2020. The Credit Union Act 1997 (Regulatory Requirements) (Amendment) Regulations 2020 S.I. 675 of 2020 make some minor amendments to the 2016 Regulations and take immediate effect.
For more information, click here.
| Factor | Description | Ranking |
| Interest Rates | Short-term
Interest rates are likely to remain low in the short term making investments returns more difficult. There is also a possibility that even negative interest rates may be charged on credit union deposits. Bank of Ireland since October 2016, have now commenced charging a negative interest rate of 0.1 per cent on large corporate and institutional customers for deposits of €10 million or more. Credit union investment income is down 20% in 2016 when compared with 2015. The low interest rates on investments in conjunction with a declining loan to asset ratio represents a significant challenge to the future operating model of credit unions. |
2 –  |
| Interest Rates | Long-term
It is expected that interest rates will remain low or even negative for a number of years and consequently, the impact of low interest rates on the credit union operating model needs to be considered into the long term. |
2 – |
| Factor | Description | Ranking |
| Competition in Financial Services | Short-term
One of Ireland’s pillar banks have publicly indicated that they are actively pursuing the credit union unsecured personal loan market. The recent activity in the mortgage market can result in members forming long-term relationship with their banks. There is also evidence that Banks are focused on improving their CRM approaches. The pillar banks have the resources to ensure quick loan decision turnaround times in addition to competitive interest rates. There is evidence of significant investment by banks in high-convenience service delivery and better relationship management for customers. Introduction of new competition in the unsecured lending market in the form of PCP from car manufacturers / dealerships and direct-to-SME lenders should be considered although credit unions are making good comparisons recently between credit union loans and PCP finance from car brands. Slower growth of credit union loan-books relative to average growth within the ROI financial services sector is an indicator of the new competitive environment. |
4 – |
| Competition in Financial Services | Long-term
The same long term challenges that were present in Q4 2016 remain in Q1 217. The introduction of more Fin Tech companies into the financial services market will result in increased competition in the lending and secondary financial services market for credit unions. High-tech, low-cost base and strategically agile – Fin Tech companies could pose stiff competition to traditional financial services institutions. Advancements in technology and changes in EU policy may open up the ROI financial services market to non-domestic based financial service providers. Current and potential members who have established long-term borrowing relationships with their banks (driven by effective relationship management and key product availability) will be difficult to bring back to the credit union. |
4 – |
| Factor | Description | Ranking |
| Volunteerism | Short-term
While the challenges from the previous quarter remain in relation to attracting volunteers, the majority of credit unions have filled their committees for 2017 so this is less of a pressing issue in this quarter. |
10 – |
| Volunteerism | Long-term
The same challenges already experienced by credit union will remain when attracting volunteers – Increases in workload, changing attitudes to volunteerism, introduction of F&P Standards, and increased complexity of the role. Mergers may bring relief to some credit unions as common bonds, and thus the potential pool of volunteers, expand. The impact on governance may be felt more acutely on credit unions with a static, ageing or declining membership base. The business and technical demands of advancing credit unions may begin to ask questions of the current governance model. |
10 – |
| Factor | Description | Ranking |
| Social changes & consumer preferences | Short-term
As previously indicated, millennials & generation Y present a key challenge for credit unions in how to become relevant to these consumer segments by delivering suitable products and services. The credit union strategy should consider the investment the main banks have undertaken and are continuing to undertake in developing their communication/advertisement channels on social media and also in their development of internet based loan application processes. |
9 – |
| Social changes & consumer preferences | Long-term
Millennials and generation Y have arrived as the core borrowing demographic of credit unions. Credit unions must attract this segment in delivering basic, convenient suitable products and services. This is a business priority in many credit unions. Failure to capture significant market share within these demographics will be harshly felt in credit unions finance in the long-term. |
9 – |
| Factor | Description | Ranking |
| Economy | Short-term
Irish consumer sentiment remains buoyant. With unemployment levels at an 8.5 year low consumers are upbeat about the economy and their finances. However the KBC Ireland/ESRI consumer sentiment index also highlighted that some consumers were readjusting their spending intentions reflecting a continuing caution that is in no doubt linked to the uncertain economic outlook. Also a lot of Budget 2017 changes came into effect in Q1 2017. Current business sentiment is mixed according to March’s BOI Economic Pulse survey. The unsettled external environment, in particular Brexit, is a concern for businesses and their outlook is slightly more cautious. The construction sector is the only sector where sentiment is up. The majority surveyed expect both house prices and rents to continue increasing over the next 12 months, mainly due to continued shortage of supply. This is in spite of rent caps introduced in late 2016. |
8 – |
| Economy | Long-term
While Irish sentiment was up, the first weakening in 6 months in the Euro area was witnessed, possibly due to the pending elections in a number of key Eurozone countries and renewed concerns regarding the Greek debts and Italian economic and financial weaknesses. However there is no evidence of ECB intervention in the short term to counteract this. The Irish mortgage market and the continued rise in property prices is gathering a lot of media attention presently with concerns being raised of a repeat of the previous property bubble emerging. US government decisions on corporation tax have potential long term economic consequences for ROI. Brexit developments will be monitored closely to determine potential impact on the agri-food sector (who are largely dependent on UK exports) and manufacturing sector. |
8 – |
| Factor | Description | Ranking |
| Media coverage & public sentiment | Short-term
Credit unions continue to benefit from negative public sentiment towards the banking sector, i.e. the CBI tracker mortgage rate examination. Public view of credit unions as trusted and people-oriented financial service providers continues evidenced by increased savings figures. Recent negative media coverage relating to credit unions (CBI F&P report, AML sanctions) has dented an otherwise positive public sentiment towards credit unions. |
6 – |
| Media coverage & public sentiment | Long-term
If more frequent negative press arises, due to the emergence of further compliance, viability and/or governance issues within credit unions, it could sway current public opinion as trusted financial institutions. |
6 – |
| Factor | Description | Ranking |
| Credit Union Mergers and the Common Bond | Short-term
Same concerns as Q4 2016 remain in that mergers across the sector are opening up a wider range of strategic options available to credit unions due to increased scale. Registrar has indicated that expected cost savings and economies of scale have yet to materialise in some post-merged credit unions. Urbanisation impacting on rural common bonds means some credit unions are losing-out on potential members. Credit unions may find opportunities to expand into under-serviced common bonds through the merger process. |
5 – |
| Credit Union Mergers and the Common Bond | Long-term
Smaller standalone credit unions may find themselves at a competitive disadvantage if operating a common bond over-lapping with larger neighbouring credit unions created through the merger process. Where credit union members satisfy multiple common bonds, high-calibre potential borrowers are likely to gravitate to the larger credit unions with a wider range of services, higher levels of convenience and more competitive rates. Pressure to re-define the concept of the common bond may intensify as the expanding geographical / industrial reach of credit unions test the viability of the common bond in its current form. |
5 – |
| Factor | Description | Ranking |
| Brexit | Short-term
There is currently, an apparent lack of Brexit-strategy by the UK Government which is creating uncertainty within the EU. The longer the period of uncertainty remains, the more volatility Ireland will experience in currency markets, investment, trade and confidence. The nature of any border with Northern Ireland remains of significant concern. For Ireland, the harder the Brexit, the bigger the risks. Should the WTO trade model be adopted putting tariffs in operation on trade between the EU and the UK, Ireland will be particularly exposed and there is a real risk of a reduction in trade. The areas most impacted by the sterling fall and trade disruption are Ireland’s traditional markets such as agri-food and engineering. The pressure of a weak sterling is having a negative impact of many of our exports. |
10 – |
| Brexit | Long-term
There is the potential that Ireland will gain as a result of winning an increased share of foreign direct investment however, it is most likely that the impact of Brexit will be negative and material. |
10 – |
| Factor | Description | Ranking |
| Economy | Short-term
While consumer sentiment remains buoyant, Novembers BOI Economic Pulse survey has indicated that current consumer confidence is at its lowest level for the year – due mainly to the unsettled external backdrop (Brexit & US election result), and some industrial unrest at home. Households have downgraded their assessment of both the economy and their own financial prospects. However 3 in 4 plan to spend either the same or more on Christmas this year, with retailers expecting turnover to be up on last year. Central Bank Macro Financial Review 2016 states that risk to financial stability within Europe remains elevated. However domestically there has been recent positive increases in employment levels and earnings domestically. Labour force is now expanding at a faster pace due to net immigration. Skills shortages are driving up wages in certain sectors but overall there are no real concerns about wage pressures. The shortage of supply in the housing market will continue to drive up house prices and rents. |
9 – |
| Economy | Long-term
US government decisions on corporation tax have potential long term economic consequences for ROI. External developments could impact on the agri-food sector (who are largely dependent on UK exports) and manufacturing sector. |
9 – |
| Factor | Description | Ranking |
| Volunteerism | Short-term
Increases in workload, changing attitudes to volunteerism, introduction of F&P Standards, and increased complexity of the role has resulted in a decreasing pool of suitable volunteers to fill senior positions within credit unions. |
8 – |
| Volunteerism | Long-term
Mergers may bring relief to some credit unions as common bonds, and thus the potential pool of volunteers, expand. The impact on governance may be felt more acutely on credit unions with a static, ageing or declining membership base. The business and technical demands of advancing credit unions may begin to ask questions of the current governance model. |
8 – |
| Factor | Description | Ranking |
| Media coverage & public sentiment | Short-term
Credit unions continue to benefit from negative public sentiment towards the banking sector. Public view of credit unions as trusted and people-oriented financial service providers continues. Recent negative media coverage relating to credit union governance has dented an otherwise positive public sentiment towards credit unions. |
7 – |
| Media coverage & public sentiment | Long-term
If more frequent negative press arises, due to the emergence of further compliance, viability and/or governance issues within credit unions, it could sway current public opinion as trusted financial institutions. |
7 – |
| Factor | Description | Ranking |
| Social changes & consumer preferences | Short-term
Millennials & generation Y present a key challenge for credit unions in how to become relevant to these consumer segments by delivering suitable products and services. Banks are acutely aware of the importance of this segment and have undertaken investment in channels and products for this segment. Bank of Ireland results for first half of 2016 states: “Enhancing the mobile proposition to respond to increased customer usage. Simplifying and digitalising customer journeys. Over 59% of personal and 83% of small business loans delivered online or via phone in H1 2016”. |
6 – |
| Social changes & consumer preferences | Long-term
Millennials and generation Y have arrived as the core borrowing demographic of credit unions. Credit unions must attract this segment in delivering basic, convenient suitable products and services. This is a business priority in many credit unions. Failure to capture significant market share within these demographics will be harshly felt in credit unions finance in the long-term. |
6 – |
| Factor | Description | Ranking |
| Interest Rates | Short-term
Interest rates are likely to remain low in the short term making investments returns more difficult. There is also a possibility that even negative interest rates may be charged on credit union deposits. Bank of Ireland since October 2016, have now commenced charging a negative interest rate of 0.1 per cent on large corporate and institutional customers for deposits of €10 million or more. Credit union investment income is down 20% in 2016 when compared with 2015. The low interest rates on investments in conjunction with a declining loan to asset ratio represents a significant challenge to the future operating model of credit unions. |
5 – |
| Interest Rates | Long-term
It is expected that interest rates will remain low or even negative for a number of years and consequently, the impact of low interest rates on the credit union operating model needs to be considered into the long term. |
5 – |
| Factor | Description | Ranking |
| Credit Union Mergers and the Common Bond | Short-term
Mergers across the sector are opening up a wider range of strategic options available to credit unions due to increased scale. Registrar has indicated that expected cost savings and economies of scale have yet to materialise in some post-merged credit unions. Urbanisation impacting on rural common bonds means some credit unions are losing-out on potential members. Credit unions may find opportunities to expand into under-serviced common bonds through the merger process. |
4 – |
| Credit Union Mergers and the Common Bond | Long-term
Smaller standalone credit unions may find themselves at a competitive disadvantage if operating a common bond over-lapping with larger neighbouring credit unions created through the merger process. Where credit union members satisfy multiple common bonds, high-calibre potential borrowers are likely to gravitate to the larger credit unions with a wider range of services, higher levels of convenience and more competitive rates. Pressure to re-define the concept of the common bond may intensify as the expanding geographical / industrial reach of credit unions test the viability of the common bond in its current form. |
4 – |
