DERRY, Ireland–More than 1,000 members of Derry Credit Union here have been told they must withdraw their money because they exceed a deposit cap put in place due to sluggish loan volumes.They aren't the only CU members getting that same message.
At Derry CU, initially, deposits were capped at £20,000, but as of April 30 that amount was reduced to £15,000. The change affects 1,052 members of Derry CU. Two other CUs in the market, Pennyburn Credit Union and Waterside, CU, also have caps set at £20,000.
Ireland’s credit unions are required to have capital of at least 10%.
“Derry Credit Union must generate income to pay for the services provided, including members’ dividend and interest rebate,” states a letter sent to members. “Our main source of income is the interest we charge on members’ loans. Since 2010, our loans have decreased from £41.6m to £30.6m and our shares have grown from £70.6m to £83.2m. We welcome this display of confidence by our members in our financial strength. However, due to the very changed regulatory environment in which Derry Credit Union and credit unions around the country are now operating, there are downsides to such an increase.
“The credit union’s reserves are taken from the credit union’s yearly surplus. Member’s dividend is also paid out from the yearly surplus,” the credit union said. “The challenge facing us is that if shares continue to rise at their current levels, the funds available to pay dividends (if a dividend can be paid at all) at year end may be significantly reduced.”
The credit union, which has a total membership of 30,304, said in the letter the £15,000 cap was a “temporary measure.” Any members over the £15,000 cap after April 30 are being sent a check for the surplus amount.
The Independent summed up the situation in Ireland by reporting that “credit union leaders said the savings-and-loans bodies were suffering from their own success, as members wanted to save with them rather than with the banks. But high levels of savings at a time of muted demand for loans are causing problems for credit unions.”
An additional €800 million was saved in the country’s 286 credit unions last year, taking the total for the three million members to €13.3 billion in deposits, according to the Independent. But as the publication also explained, for every €100 in savings, €10 has to be put into the reserves. The money that goes into the reserves comes from profits made on loans.
Rathfarnham Credit Union CEO Al McCauley told the Independent it asked its 26,000 members to reduce their savings balances down to €50,000 last year. It was now considering a further reduction, to €25,000 a member.
St Anthony's and Claddagh in Galway said it is imposing a cap of €70,000 for new savings balances per member, the Inidependent reported, while Capital Credit Union, which emerged from the merger of Dundrum and Sandymount in Dublin, said it was restricting new savings to €30,000 per member.
Chief executive Gerry McConville said the credit union was restricted in how it could invest its funds, and was having to pay Bank of Ireland for deposits since the bank introduced negative interest rates for large deposits, the Independent reported.