Loan book growth continues to be a top priority for credit unions in an environment where declining investment returns are eroding expense to income ratios, according to a survey from accountancy firm RBK.

The findings are published in RBK’s tenth annual credit union benchmarking survey.

RBK said the survey reflects the financial data of 76 credit unions and the views of 41 credit unions. Respondents ranged from credit unions with assets under €10m to those with assets of over €400m. Financial data was sourced from credit union annual reports.

Over two-thirds of survey respondents said their credit union launched new products or services in the last 12 months and more than half collaborate to innovate and develop new products.

As in previous years, the fastest growing loan types in 2021 were home improvement and car loans.

In Association with

Key findings:

• Loan book: 58% of this year’s survey respondents said loan book growth was better than expected in 2021 (down from 65% when compared to 2019). However there is a 55 percentage point gap between lowest and highest growth rates in community credit unions, and a 19 percentage point gap in industrial credit unions.

• Interest Rates on Loans: The average rate of interest on loans within Community credit unions has fallen from 8.9% to 8.1% in 2021 and the rate earned by industrial credit unions has fallen from 7.4% to 6.7%. RBK said this reflects a change in the mix of loan products being offered within the sector.

• Marketing: Despite loan book growth being one of their biggest challenges, one third of survey respondents do not have a separate business development or marketing function. The RBK report commented: “Management and boards need to question whether they are allocating sufficient resources to marketing to maximise their loan book growth.”

• Human Resources: Difficulties recruiting and retaining staff in a competitive labour market along with the rising cost of living are driving wage inflation. Half of credit unions surveyed increased wages last year, typically by about 2-3%, and 53% plan to increase wages in the next 12 months.

• Board effectiveness: One in five survey respondents rated their board ‘fully effective’ in 2021, up 10 points when compared to 2019. A further 50% gave their board 4 out 5 for effectiveness.

• Viability: With average expense to income ratios at 82% in community credit unions and 72% in industrial credit unions, cost cutting, share caps, and new products and services are among the actions being taken to address these concerns.

• Mergers: 37% of our survey respondents plan to merge in the next three years either by bringing in another credit union (31%) or by joining a larger credit union (6%).

RBK partner Ronan Kilbane (pictured) surmised that credit unions are highly alert to both the challenges and opportunities in the current environment.

“Priorities are being reset as declining investment returns and negative interest rates are eroding expense to income ratios,” he explained.

“With inflation driving up wages, outsourcing of functions beyond internal audit and risk management looks increasingly likely. The departure of KBC and Ulster Bank from the Irish market is an opportunity for credit unions to collaborate, innovate and develop new products and services while growing their loan books and securing a sustainable future.”