Collective Sigh of Relief

Collective Sigh of Relief

Davy’s High Court vindication sets the cat amongst the pigeons. Those familiar with the case were unsurprised at the ruling which found the Ombudsman’s procedures flawed.

This should come as cold comfort indeed to credit union boards and management. Faced with losses which will now be recovered in the majority of cases (it appears all but a handful have accepted the Davy workout), boards are breathing a collective sigh of relief. Until, that is, they get down to the job of deciding on dividends.

All indications are credit unions will pay the lowest dividend in years. In the face of growing high street competition for funds which won’t abate for some time, the credit union failure to structure their business to compete at market rates is causing significant funding problems particularly for those who are over invested in long term investments and finding liquidity a growing problem.

The signs are not so good. Apart from investment losses, rising bad debts and increasing loan delinquency will undermine profits for this year and more particularly next year when credit unions adopt more stringent provisioning rules. Implementation of these new rules has been delayed this year as investment losses began to make themselves heard of. It appears also there was a significant delay in specifying the nature of IT systems changes. Not for the first time untimely implementation underscores the reality that trade bodies should stay out of business they are not competent to participate in.

The greatest danger at this time is the almost complete absence of emergency liquidity and solvency supports for the sector which faces trying times. All eyes are on Q4 when the annual round of credit unions AGM. Boards will face the genuine enquiry of members who have been dismayed and are increasingly questioning their continuing membership of their local credit unions. The prospect of many declaring losses and no dividends looms large.

It appears that few if any boards have recognised the underlying issues highlighted by the credit crunch and related investment losses. Many have never really engaged in proper strategic assessment and structuring of the business.

The question remains just what are credit unions doing about realising a sustainable future?