Irish League of Credit Unions AGM Speech by Minister Fleming 23rd April 2022

Introduction

I’m pleased to be attending a Credit Union conference in person in Belfast.

The Irish League of Credit Unions has a long tradition and history both North and South. The late great John Hume was one of the founding members of Derry Credit Union in 1960 and became the League’s youngest ever president in 1964. In a 2003 interview John Hume spoke of the pride he took in his work for Credit Unions and the League, saying:

“Of all the things I’ve been doing, it’s the thing I’m proudest of because no movement has done more good for the people of Ireland, north and south, than the Credit Union movement.”

Let me say at the outset that I believe the Credit Union sector, which comprises of 348 Credit Unions across the island, is one of the most valuable assets we have in our society today.

Policy Review process

The aim of my Government is to assist the credit union sector to become a strong, resilient and collaborative movement.

My appointment as Minister of State with responsibility for credit unions is unique. This is the first time ever a Minister of State has been given direct responsibility for credit unions. In our Programme for Government we made four commitments to the sector;

• Review the policy framework within which credit unions operate.

• Enable and support the credit union movement to grow.

• Support credit unions in the expansion of services, to encourage community development.

• Enable the credit union movement to grow as a key provider of community banking in the country.

Since I started in August 2020, I have prioritised work on the review of the policy framework. I understand that the policy framework is very different, and much more detailed, than that which applies to credit unions here in the North.

As many of you will be aware, the stakeholder engagement process recently concluded in a meeting with the League, the other representative bodies, myself and officials on 10 March. This meeting was the culmination of an eighteen-month long process. I would like to take this opportunity to thank the League for its submissions in February and July 2021 and its engagement with and input into the review process.

There are 15 proposals in total and they are categorised under 5 objectives.

The first objective of the review is to Recognise the Role of Credit Unions:

Credit unions have been part of and at the centre of local and workplace communities for over 60 years. Our proposal recognises the role of the sector in developing volunteers and acknowledge its role as a large cooperative movement in Ireland.

The second objective is to Support Investment in Collaboration :

Collaboration is necessary for the growth of the sector. Even the largest Credit Unions do not have the scale to develop opportunities on their own.

The League’s all-island approach is in itself an excellent example of cross border collaborative initiative. I would like to acknowledge the work of the League in supporting Credit Unions in working on SME lending with the Strategic Banking Corporation of Ireland and with the Sustainable Energy Authority of Ireland on funding for retrofit.

The Government announced €8 billion of increased funding for retrofit. Credit unions role as providers of unsecured credit makes you a natural partner of the Government’s to support the climate change agenda.

Involvement in these schemes are examples of cooperation between Government Departments and Agencies and the Credit Union sector in developing new products for your members. Credit unions are continuing to develop their business models:

• 69 credit unions are now providing current accounts through collaborative vehicles, an increase of 18 in the past year.

• 3 collaborative vehicles have been approved to support lending of up to €900 million to Approved Housing Bodies. Every credit union now has the opportunity to invest in funding AHBs.

• 40 credit unions are collaborating with Cultivate to provide agri-lending.

• 24 credit unions have partnered with PeopL to provide general insurance products to members and many more provide assurance products.

The third objective is to Support Governance:

The review also puts forward proposals that will assist the Boards of Directors to focus on strategic development. The proposals have been greatly assisted by the research conducted by the credit union Advisory Committee in relation to directors. This is a great example of data driven research and analysis which greatly informs the policy debate and leads to concrete proposals.

The fourth objective is to Improve Members Services :

The proposals put forward under this objective consist of practical improvements to the Common Bond which will assist credit unions in providing more products to more members, while protecting the essence of the common bond. These proposals should help credit unions to improve their competitiveness by increasing the flexibility of some of the rules around the Common Bond.

The fifth objective is Transparency of Regulatory Engagement:

The proposals seek to support regulatory engagement through the introduction of service level agreements between credit unions and the Central Bank. This will help the sector create better regulatory dialogue whilst respecting the independence of the Central Bank.

I’m happy to say that these proposals got broad support from all the representative bodies at the recent stakeholder meeting. I would, however, caution against the temptation of believing that legislative change alone will tackle the challenges faced by credit unions today.

Legislative amendments to the policy framework will not solve the financial and business model challenges arising from, muted credit demand, strong savings growth and high operating costs.

Growth in North South co-operation

The Irish Government’s commitment to North South co-operation is demonstrated by the Shared Island aspects of our updated National Development Plan. This sets out a considerably enhanced prospectus for all-island investment and economic prosperity out to 2030.

The Shared Island Initiative, which the Taoiseach launched in 2020, is working to engage all communities and traditions to build consensus around a shared future and to harness the full potential of the Good Friday Agreement to enhance cooperation and mutual understanding on the island.

€1 billion from the Shared Island Fund has been ring-fenced for capital investment on all-island projects over the next decade. With this in mind, I would like to acknowledge the work that the League has done to encourage and develop collaborative ventures in the Credit Union sector in the North and South.

The League’s Transformation plan

I would like to take this opportunity to speak about the League’s proposed transformation plan. I welcome the objective of enhancing collaboration. I have worked hard with my officials to ensure that all collaboration and engagement with the sector is direct and transparent.

Since my appointment as Minister I have had 100 engagements with the credit union sector including individual credit unions, all the representative bodies and collaborative ventures. I have met with the League and its various Chapters 12 times.

My officials have even greater levels of engagement with the sector and regularly host a stakeholder forum with the League, other bodies and the Central Bank. I hope to meet some local credit unions at the event today.

And in relation to our UK counterparts I have recently met with the Association of British Credit Unions and credit unions in Manchester, Leeds, Glasgow and Edinburgh, all of which was organised by the Swoboda Research Centre. In December 2021 I also met with my UK equivalent Minister John Glen.This gave me insight into the differing issues at play across the different legislative and regulatory frameworks.

As Minister, I have been impressed by the work of CUAC and its approach to research, collaboration and direct engagement with the sector and the Department. I welcome the League’s goal of developing a similar, professional and evidence based approach to advocacy.

I am delighted to see that the transformation plan includes a focus on growing lending, including mortgage and SME lending. I look forward to engaging with you as these strategic plans are developed.

Growth in lending

Given the challenges facing credit unions, I cannot emphasise enough, to the sector both the importance of growing lending. Collectively the sector has a loan book of almost €6 billion, €5.2 billion in the South and €700 million in the North.

It is encouraging to see that loans in the League’s credit unions here in the North, were up 2.7% year-on-year in 2021. An increase of 3.3% year-on-year was recorded in the League’s credit unions in the South. However, despite these positive developments, loan to asset ratios in the South are unsustainably low. The current Loan to Asset ratio of 27% must be increased significantly if the sector is to grow sustainably.

Without collaboration and growth in lending credit unions will not be well placed to take advantage of the opportunity of bank branch closures without collaboration and increasing lending. My message to the credit union sector today is to lend more and keep building on the good work you have been doing.

Banking Sector Backdrop

In November 2021 Minister Donohoe published the terms of reference for a Retail Banking Review. This review will be a broad-ranging examination of the banking sector in Ireland. This comes at an opportune time with the impending exit of Ulster Bank and KBC from the Irish market and the trend of bank branch closures both North and South.

Speaking at another credit union conference recently, I highlighted that fact that in many towns in Ireland the local credit union is now the only remaining financial institution. This represents a great opportunity to fill the gap left by bank exits and closures.

The pace of change in the financial services landscape has become relentless and this can be seen in the rapid growth of FinTech and digital banking. If you have a Revolut account now you can apply and get approval for a loan in less than 10 minutes. This represents both an opportunity and a challenge for credit unions. There is great opportunity for credit unions to harness developments in FinTech to broaden membership and grow lending and many have already begun to do so. There is also the challenge of balancing the use of new technologies while still keeping the essence of providing community banking.

While the banking sectors North and South differ, many of the overarching issues I have noted apply to both jurisdictions. Representatives from the League will attend the Retail Banking Forum in Tullamore next week.

Concluding remarks

In conclusion, I would like to say again that I believe the credit union sector is one of our society’s most prized possessions. The local credit union and the role it can play in the economy and in communities is more important now than ever before.

If the credit union sector is to grow and become the movement it has the potential to become more needs to be done by all stakeholders to embrace business model change and increase lending and collaboration.

The League has a leadership role in providing your members, many of whom are here today, with commercially-minded support to enable and implement the required business model change. Thank you for your time and for giving me the opportunity to speak to you today.