Credit Union Profitability – Irish Credit Unions Need to Restore Aggregate Profitability
While in aggregate the CU movement at large is moving into unprofitability, many of the credit unions, especially the larger ones are profitable and may not see an urgent need for a centralised treasury system. Individual smaller CUs may also not see the immediate benefit of a centralized treasury system. But the time has now come for credit unions to think collectively rather than individually .
Projected Impact of Liberalised New CU Lending
New lending, whether into mortgages or SME loans will be slow to restore CUs to profitability.
Projected Impact of Centralised Investment
In the short to medium term new profitability has to come from reinvestment of the movement’s surplus un- lent €12billion into newly liberalised areas of Investment.
If the current €12billion is divided by the current 233 credit union it suggests an average sum for investment of some €51m per credit union. This is too small a sum for the individual CU to invest effectively. Investment policy of credit unions has to be balanced carefully and safely between that which is retrievable on demand, that which is available in the short term and that which is available for investment in the longer term, e.g. more than 5 and 10 years.
The only way that such a prudent spread across the maturities, across interest rates and investment vehicles can be achieved is by combining the full €12 Billion and administering it centrally and prudently, by reference to both market trends and to likely demands for loans within the movement itself (the primary purpose of the credit unions !).
Investment policies and percentage distributions for the Central treasury should be determined by the ILCU or the CUs at large. Such a central treasury would then be in a much stronger position when negotiating rates of return and terms of withdrawal, beyond the capacity of even the biggest credit unions.
Impact on Costs and Efficiency of Centralised Treasury
Investment costs can be minimised, if managed centrally and, operationally, credit unions will be relieved of a very specialised activity for which they are not currently best equipped.