Credit Union dividends 2017

dxhound2005

Savers have to wait until the end of the year to find out what they will be getting. I was surprised to find that the Dundalk CU is giving a dividend of 0.75%. The other one I know about is the An Post CU which is 0.25%.

I expect that most will be 0.25 or 0.50. Dividends are subject to DIRT. €50K @ 0.25% will get you €76 after DIRT.

The An Post CU has put a limit of €40K for new savers. A lot of them must have loads of money that they can't lend out.

Cute Hoor

That is a fantastic return from Dundalk CU, most are probably paying a dividend between 0% and 0.25%, some CUs also give an interest rebate to encourage borrowers. The size of the dividend can only be determined when the annual accounts are prepared obviously and is generally communicated to members at the AGM, I'm pretty sure it has to be approved by the AGM. Credit Unions are really struggling to lend money, or get any return on their investments, thereby having difficulty justifying their existence. Credit Unions should be lending out about 70% of their income, for most that figure is probably closer to 20%, an untenable situation longterm when you combine it with 0% in some cases (some AAA institutions are probably charging now to hold your money) return on investments. They offered a €5bn loan to the Government for a housing fund but the Government is still sitting on it's hands, that would help their situation. Their hands are being tied behind their backs by the Central Bank with strict limits on lending that do not apply to other financial institutions and ever stricter regulatory requirements (not a bad thing in itself) that is forcing many to merge with neighbours. Mergers have reduced the numbers significantly. A small number of credit unions have got into financial difficulties but in general the credit unions are very well run on a not for profit basis by great people, local volunteers who give of their time freely for the benefit of their local communities. It would be a shame to see them going out of business. BORROW BORROW BORROW

garrettod

Cute Hoor wrote: »

That is a fantastic return from Dundalk CU, most are probably paying a dividend between 0% and 0.25%, some CUs also give an interest rebate to encourage borrowers. The size of the dividend can only be determined when the annual accounts are prepared obviously and is generally communicated to members at the AGM, I'm pretty sure it has to be approved by the AGM.

Hi,

That return for Dundalk is very good. Any idea what their ratio of loans to members shares is ? If it's strong, then that may explain how they can pay a half decent dividend, but failing that I can only conclude that they locked into fixed rate deposit accounts or decent "risk free" bonds paying decent yields.

Cute Hoor is correct, any dividend needs to be approved at an AGM, but in reality it's little more than rubber stamping exercise once the Board recommend it.

I would be expecting the majority of Credit Unions to be paying a dividend of very close to zero for this year and again for next year, possibly even the year after. All because deposit rates are essentially zero and they have very small loan books relative to the members shares (as Cute Hoor correctly points out).

At this stage, may of the Credit Unions are doing little more than collecting in and administering their members savings, to then lodge with the Banks. It's a crazy situation and particularly in a low interest rate environment, but it's because they can't get the loans out the door.

The Credit Union movement needs a few things:

• legislation to be changed, to help facilitate them entering new markets (wisely, not recklessly !)
  
• significant investment in infrastructure such as modern online banking services, phone apps etc.
  
• get on top of their compliance and regulation needs. More shared resources throughout the ILCU for example may help with this, in terms of securing expertise and managing costs for smaller Credit Unions.
  
• to move into the 21st centuary, with regards to how they do their business. Many credit unions still only open certain hours, do not have facility to make a loan application online,
  
• get more flexible and competitive on lending rates (this will require some short term pain as they will argue that they can't afford to lend at cheaper rates, but they must to draw in custom - otherwise, most borrowers will use the banks !).
  

BORROW BORROW BORROW

Agree in principal, but keep an eye on those interest rates as some credit unions are still charging excess 12% on loans, while also insisting on retaining your shares (at close to zero interest rate) so that further increases the overall cost of your borrowing.

astjan

Correct me if I'm wrong. Shouldn't CU lower their rates on loans in order to encourage lending? Standard loan in my CU is currently 10.09 APR. What's the point if I can get much cheaper loan in normal bank?

astjan

Correct me if I'm wrong. Shouldn't CU lower their rates on loans in order to encourage lending? Standard loan in my CU is currently 10.09 APR. What's the point if I can get much cheaper loan in normal bank?

garrettod

Hello, Astjan,

You are right to an extent.

From a competitive point of view, the Credit Union should certainly be lowering their lending rates to match those on offer from the Banks. In fact, they should be offering lower rates, given they will hold the members shares as security, so in effect only be taking on 75% of the risk on Day 1 (assuming the shares represent 25% of the overall loan amount). The Credit Union's failure to reduce their rates is probably one of the key reasons the movement has such a low level of loans, when compared to members savings and could ultimately cause CUs to collapse.

However, the flip side of the debate is that Credit Unions often lend money to people who may not qualify for a Bank loan. As such, these people would be deemed a higher risk and with a higher risk, there must be a higher return to help cover the cost of some loans not being repaid. For this reason, the interest rate needs to be kept reasonably high.

The real problem here is that credit unions are not all the same. Some have excellent resources to assess credit, are members of the ICB (or soon, the new credit register) etc. However, others are part time operations, run by volunteers who have little or no credit skills or experience and don't have access to the likes of the ICB. If all had excellent credit facilities, then the chances are their overall risk would reduce and this would mean less bad debt provisions and lower interest rates for borrowers.

You should raise these points with the Board of your Credit Union (do it in writing and ask for a written response ), as it would be interesting to hear what they have to say and also, force them to think about these issues and what they can do to improve things for their members. In my personal view, many credit unions are not put under the microscope often enough, by their members (who are their shareholders !).

For what it's worth, many of the small credit unions continue to advance their standard loan at 12.68% APR, so in reality you are not doing as badly as many other credit union members.