Regulation of CU operations David Hewson Monitoring, ILCU 1IFAD - Moldova Study Tour, 2012

Agenda Introduction The Irish CU Movement – some statistics Economic Situation and impact on credit unions Legislative & Regulatory Changes Impacts on credit unions Outlook 2IFAD - Moldova Study Tour, 2012

The Irish Movement - statistics Approx 3 million members (60% of population) All Ireland – 487 credit unions (386 in South, 101 in North) Savings €11.53bn – 95% shares, 5% deposits Loans €5.1bn (down 8.5% year to date) Bad Debt Provision €755m (14.9% of loans) Investments > €7bn – 77% in deposit accounts, approx 9% in bonds, rest in collective investment instruments etc 7,500 volunteers. plus 2,500 paid staff

The Irish Movement - statistics Sept 2010 (CU year end) Sept 2011 (CU year end) June rd qtr Assets€13.9 bn€13.6 bn€13.5 bn Loans€6.6 bn€5.55 bn€5.1 bn Loan provisions€591 million (9.5% of loans) €699 million (12.6% of loans) €755 million (14.9% of loans) Bad debt write off €128 million (2.1% of loans) €165 million (3.0% of loans) €80 million (1.6% of loans) Loan arrears %15.2%17.6%19.98%

The Irish Movement - statistics Sept 2010 (CU year end) Sept 2011 (CU year end) June rd qtr Savings€12.0 bn€11.7 bn€11.5 bn Reserves€1.85 bn€1.87 bn€1.9 bn Cus with deficits53835 Total surplus€170 million€93 million€227 million New loan issued€2 billion€1.7 billion€1.1 billion

Economic Situation Economy in deep recession Public finances deteriorated, but action being taken Over expansion of public sector coupled with tax cuts during boom years Labour market has deteriorated rapidly, 450k unemployed Banking system stabilised but access to credit limited Consumer confidence extremely low Demand for credit from Cus very low Repayment capacity of borrowers under pressure

Lending levels

CU Lending levels

Economic Situation Major impact on Credit Unions - Loans: Economic problems affecting our members Loan delinquency rising (now over 19.98%) Falling loan book hitting income Return on loans 8.7%, Return on investments 3.3% in 2012 Tougher Regulatory regime Every Irish credit union has been affected in recent years 140 (or 28%) did not pay a dividend in 2011 More will pay dividends this year 9IFAD - Moldova Study Tour, 2012

Unemployment rates

Legislative & Regulatory changes - NI FSA took over Regulation March 2012 Increased Regulatory Focus New rules on Capital, Loan Provisioning and Reporting ILCU liaising with FSA for our members Transition has been smooth to date In general capital levels are good, and arrears are lower than ROI equivalents. ILCU Credit Unions will not have issue meeting FSA requirements First Returns being submitted to FSA Jan 2013

Legislative & Regulatory changes - ROI Central Bank Bill to be in law by end of year Allows Central Bank to take control, appoint managers, remove directors & staff, move savings and loans to other institutions May impose term limits on directors of credit unions, and other restrictions this is being opposed by ILCU Extra requirements on Cus under strategic planning, risk management, compliance etc Savings Protection Scheme Under pressure but still functioning Reserves Minimum Regulatory Reserve of 10% of Total Assets

Legislative & Regulatory changes - ROI Strategic Review of Sector ReBo restructuring Board set up The ReBo shall comprise representatives from the credit union sector, the Central Bank, of Ireland, the Department of Finance and a number of independent members. Plan for the restructuring of the credit union sector Engage with and assist credit unions in the preparation of restructuring plans The ReBo shall remain in place until 31 December Numbers of credit unions in ROI will fall

386 ILCU affiliated credit unions

The role of ILCU - Monitoring PEARLS ratios based on quarterly prudential returns Credit Unions ranked against Peer Credit Unions Focus on the following risk areas:- Capital Arrears Liquidity Income/ Expenditure Growth rates and trends 15IFAD - Moldova Study Tour, 2012

The role of ILCU - Monitoring Risk Based scheduling of visits, focus on priority high risk credit unions ILCU perform loan book reviews for credit unions ILCU perform investment and fixed asset reviews Train credit unions on strategic planning, governance, finance, compliance, PEARLS Project team set up for strategic planning, risk management 16IFAD - Moldova Study Tour, 2012

Conclusions Challenging environment with pressure on income and falling loan book Tighter regulation stemming from banking crisis Members facing unprecedented difficulties Need for credit unions is greater than ever Opportunity for credit unions, market share, services Credit union members more likely to repay CU loan than bank loan when in default! Strong member loyalty 17IFAD - Moldova Study Tour, 2012

Questions? 18IFAD - Moldova Study Tour, 2012