Central Bank figures showed credit unions continue to add to its stock of loans, but lending from these institutions still accounted for a small part of the €12bn mortgage market last year.
House loans provided by credit unions jumped 53% to €484m from €317m in 2022 and the average loan size increased from around €86,000 to €105,000.
By the end of last September, loans issued by credit unions rose to €3bn, surpassing pre-pandemic levels and bringing total outstanding stock to €6.3bn, up from €5.6bn in the previous year, according to the regulator.
Business loans also increased from €146m to €162m in the period, with the average loan size increasing from around €20k to €22k.
The Central Bank said these financial service providers could lend much more mortgage and business loans as there was €900m unused capacity by the end of September 2023.
“Given the trends and the economic outlook, this is a time for credit unions to pay particular attention to proactive asset and liability management, arising from the changing maturity profile of their balance sheets,” said registrar of Credit Unions Elaine Byrne.
However, the financial watchdog also warned about mortgage lending in a high interest rate environment. These risks include an increase in the reported amount of earlier stage arrears together with a decrease in the average provision coverage on gross loans in arrears, the Central Bank said.
“The slight increase in arrears captured in this morning’s report is a sombre reminder of the pressure that the increased cost of living has brought on people,” said Kevin Johnson, chief executive of the Credit Union Development Association (Cuda).
Mr Johnson said he expects the scale of credit union lending to “significantly increase” in the coming months and years, following the enactment of the Credit Union Amendment Act 2023 which will allow credit unions to offer a service or product such as a home loan to a member of another credit union from September.
Cuda forecasted total new credit union mortgage lending could reach €1bn per year by 2027.
The Credit Union Regulatory Lending Framework review by the Central Bank is ongoing and is due to be published by the end of June. Mr Johnson said Cuda is hopeful that “further changes will be implemented which will permit credit unions to lend more”, once the full framework is published.
Some experts have voiced concern that credit unions do not have enough cash to enable them to offer large lending services provided by banks.
However, the Central Bank figures also showed there has been an increase in reserves across the sector, with all credit unions reporting regulatory reserves above the required regulatory minimum.
Mr Johnson said this increase “enables credit unions to expand on their service offerings and continue to win more of the mortgage and lending pie from the Irish banks and non-banks alike.”
Separate figures from the Banking and Payments Federation of Ireland showed sluggish switching activity, suggesting customers are not moving from their providers as the number of banks in the retail banking market has declined in recent years.