26 Jan 2018 Press Release
- Sample of credit unions offering house loans inspected;
- Inspections show some credit unions have commenced such lending without a well-developed business plan; and
- House loan lending must be prudently undertaken, well-managed and in line with credit union strategy and capabilities.
The Central Bank of Ireland today released
the outcome of a review of house loan lending by credit unions. The review
assessed the standards of governance and the procedures relating to the
issuance of such loans.
Onsite inspections were conducted on a sample of credit unions during 2017. While good
practices were evident in some cases, and some credit unions had well-developed
business plans, issues of concern were noted in relation to governance
practices and credit underwriting of house loans, as well as some deficiencies
in risk management and compliance frameworks.
It was concerning that in some instances credit unions had
commenced house loan lending without fully assessing and implementing a well-developed
Other findings include:
- There was inadequate supporting rationale for providing house loans as part of the business plan. Credit union boards must consider this prior to engaging in house loan lending;
- There was evidence of poor underwriting, including inadequate assessment of member repayment capacity; and
- There was often a lack supporting documentation to evidence compliance with applicable legislation and regulations.
Commenting on the publication of the report, Registrar of Credit
Unions Patrick Casey said:
“The Registry of Credit Unions
is supportive of credit union business model development, including the
provision of longer term lending, as part of a balanced and sustainable loan
The publication of this review is
timely, as credit unions consider the strategic advantages of this type of
lending, particularly in light of the detailed guidance we recently released on
Long Term Lending. The provision of house loans can be a
worthwhile part of the business model for some credit unions but it requires
detailed and critical assessment of both the costs and benefits involved.
The Registry will work closely
with credit unions to remediate the risks identified as part of this review and
will continue to ensure that credit unions have robust governance, risk
management and operational capabilities to underpin the business model
development needs for the future.
We expect all credit unions to review the
findings and recommendations set out in the report and consider how these can
inform decision-making when considering the provision of house loans to members,
including ensuring the appropriate systems and controls required are in place
to offer such loans.”
- For credit unions, a ‘house loan’ means a loan made to a member secured by property for the purpose of enabling the member to:
have a house constructed on the
property as their principal residence;
improve or renovate a house on
the property that is already used as their principal residence;
buy a house that is already
constructed on the property for use as their principal residence; or
refinance a loan previously
provided for one of the purposes specified in (a), (b) or (c) for the same