Irish Financial Review

Hidden credit ends as majority of Credit Unions now report borrowings

Personal credit reports take on greater role

Personal credit reports take on greater role

The day of borrowing an extra few euro and nobody knowing about it (except the credit committee) is well and truly over as more and more Irish Credit Unions report member borrowings to the Irish Credit Bureau.

Credit unions are member owned and organised on a ‘common bond’ basis, which is either by geography or industry. A majority of credit unions are organised along a geographic ‘common bond’ basis which means that members will need to live in the defined geographic area of a particular credit union in order to become a member.

Additionally, each credit union is locally organised and run. This has both advantages and disadvantages. On the advantage side, the local affiliation means that the credit union has been organised to take care of local thrift (savings) and lending. However, as a number of credit unions have become financially insolvent across Ireland, the risks are significant.

Deposits within credit unions are protected by the Deposit Guarantee Scheme as is the case with deposits in banks. On this front, credit union members have a deposit safety net.

Like banks, there are a number of credit unions that have hit the national headlines in recent years as they became insolvent. In some cases, authorities instructed some credit unions be closed down or merged with banks and other credit unions.

The major underlying problem for some credit unions is the level of non-performing debt outstanding, this is debt where the borrowers are not paying back the full amount they should be. This results in a financial shortfall at the credit union which places the credit union at risk of collapse.

As a result of rising loan arrears at credit unions, reporting borrowers to the Irish Credit Bureau has become a necessity. What this now means is that borrowers that either borrow and fail to meet the agreed repayment schedule will have those loans reported to the ICB. This in turn means that borrowers personal credit ratings will include this information and become available to other creditors should members wish to borrow at some point in the future.

A full list of all credit unions that now report to the ICB as well as credit unions with a ‘pending’ status at the ICB is available for public viewing HERE.

For consumers, it is important they are aware of the importance of maintaining a strong personal credit rating as this not only impacts their future access to credit, but could at some point be used for a broader range of uses.

In some countries, personal credit ratings are used to screen job applicants, property tenants and even hospital admissions.

For Irish consumers, the day of hiding those credit union loans are now well and truly over!

Good news for Ireland on a number of fronts

Euro zone finance ministers have agreed in principle to Ireland refinancing expensive IMF rescue loans with cheap finance raised in the market. If, as expected the deal is done and dusted, the new, lower cost of borrowing is estimated to save the State €375m in interest charges.

Lower debt interest bill for Ireland

Positive reaction in Europe to refinance request

Currently, the IMF loans carry an interest rate of nearly 5pc and when this facility was taken out during the worst days of the State’s IMF bailout negotiations, 5% was a relative bargain. However the State can now borrow for less than 2%.
The 5pc rate applies to €18bn of the €22.5bn of IMF bailout loans.
The technical formalities of putting the new deal into practise involves all of the creditors under the original bailout deal agreeing at the same time and this is the main reason why the agreement from all creditors may not be completed in time for the upcoming Budget. All signs point to a groundswell of goodwill towards Mr. Michael Noonan, the Minister for Finance as he canvasses support.

Ireland leads euro zone with higher industrial output
IRELAND has topped the list of euro zone industrial output data for July. In statistics just released by Eurostat, the increase of 1.0 % in industrial production in the euro area in July 2014, compared with June 2014, is due to production of capital goods rising by 2.6%, non-durable consumer goods by 1.2% and intermediate goods by 0.5%, while durable consumer goods fell by 1.2% and energy by 1.3%.

In the EU28, the increase of 0.7% is due to production of capital goods rising by .3%, non-durable consumer goods by 0.8% and intermediate goods by 0.4%, while energy fell by 0.6% and durable consumer goods by 0.8%.The highest increases in industrial production were registered in Ireland(+11.3%), Estonia(+2.8%), Slovenia (+2.3%) and Croatia(+2.1%), and the largest decreases in Denmark(-4.7%), Malta (-4.2%) and Greece(-1.7%).

The increase of 2.2% in industrial production in the euro area in July 2014,compared with July 2013, is due to production of capital goods rising by 4.6%, non-durable consumer goods by 4.0%and intermediate goods by 1.6%, while durable consumer goods fell by 0.2% and energy by 4.4%.In the EU28, the increase of 2.0% is due to production of capital goods rising by 4.5%, non-durable consumer goods by 2.8%, intermediate goods by 1.9%and durable consumer goods by 0.3%, while energy fell by 3.5%.The highest increases in industrial production were registered in Ireland(+17.6%), Hungary(+12.3%)and Slovenia(+9.2%), and the largest decreases in Denmark(-6.4%), Sweden(-5.0%) and Finland(-2.7%).

Why Ireland needs a national mortgage agency

With a growing chorus on thought leaders, stakeholders and influencers calling for a national strategy on the delivery of housing, one topic which is absent from the narrative is the issue of mortgages.



There is little doubt that NAMA funding for the development and delivery of 4,500 housing units will have a positive impact on the supply side of the property market.

However, while the supply side appears to be getting the bulk of recent attention, little thought is being given to facilitating the demand side of things.

Mortgage lending, despite some signs of growth, is still hovering at or near an all time low.

Property markets requires credit and for the first half of 2014, signs point to another anaemic year. Despite the best efforts of Bank of Ireland and AIB, total lending for this year will be about the same as units drawn down in 1978.

The commercial banking sector is still massively wounded. It primary focus continues to be on debt recovery…as it should be, after all, we all want our deposits to be safe and available when we want them.

It’s now time to look at some alternatives, one of which should be a national mortgage agency. This would ensure that as NAMA-funded properties come on stream, the necessary funding can be provided to ensure available funding is available to buyers.

Mortgage agencies are not new. The US has long had many. ‘ time Ireland looked at some options.

One measure Government could use to fund such a programme is the interest savings currently being pursued as it attempts to repay international creditors early. IN fact, if managed properly, this could become an interest earner for the Government.



UK’s Jonathan Hill becomes Commissioner for Money

Jonathan Hill, the little known UK political figure has been appointed to one of the most powerful posts within the European Commission. Mr. Hill has been nominated as Commissioner for Financial Stability and Regulation.

Commissioner Hill will oversee financial stability across the EU

Commissioner Hill will oversee financial stability across the EU

What makes this appointment so interesting is the message it sends.

First, for months, the British Government and City of London have been bitterly opposed to a range of financial curbs and transaction taxes which are viewed by authorities and financial groups there as a major threat to the role of London as an international financial hub.

Second, while Britain is not a member of the Euro, this appointment will oversee the pillars of stability across the Euro area. Whether this ‘non-member running the club’ approach will have a significant impact will be foremost on the minds of those hawks of austerity; the Germans, Dutch and Finns.

Third, the selection of Mr. Hill is clearly political on a number of fronts, not least one of peace between Mr. Juncker and Mr. Cameron. David Cameron fought hard to derail the appointment of Mr. Juncker to Commission President. The gamble seems to have paid off. However, others may smell appeasement in advance of the UK referendum on remaining a member of the EU.

What will be particularly interesting in the years ahead is the approach Mr. Hill takes towards building the pillars of financial stability. Coming from the Conservative Party, one can expect it will be more balanced, which should auger well for the beleaguered financial services sector across Europe.

One thing is for certain though which is that Mr. Hill can retire the less than noble title of ‘Lord Who’. From today, he will become ‘Commissioner Money!

Apple takes a bite out of digital payments

The idea of the smart wallet has been mooted for years but finally, with one of the largest and most successful mobile technology providers, Apply entering the arena, it looks like a major push by the giant of smart technology could give ‘smart’ payments the push it needs.

Apple places a bet on mobile payments

Apple places a bet on mobile payments

Yesterday, Apple announced that it planned to offer its own version of a mobile wallet, teaming up with retailers like Target and restaurants like McDonald’s, as well as the three major credit card companies.
Simply, it means that customers of participating retailers will soon be able to buy a Big Mac or a laundry detergent with the tap of a new Apple iPhone or a new smartwatch, also announced on Tuesday.
Mobile payments are expected to reach US$100Billion over the next 5 years according to Forester Research. Competition in the digital payments sector is intense with both technology firms, banks, credit card companies and new start-ups vying for a place.

Irish players
There are a number of Irish firms in the digital payments business, including Dublin-based Realex payments, Kerry-based Monex and Stripe, founded by the Limerick based Colliston Brothers.

Apple’s solution, waving the phone, is little different from previous efforts. But Apple hopes that its promises about security, including that credit card information will not be stored on the smartphones or devices or on Apple’s servers, will convince consumers that it is safer than using a credit card.

Apple Pay will be available only on the company’s two new smartphones, the iPhone 6 and the larger iPhone 6 Plus, and the Apple Watch, a wearable computing device Apple plans to sell in 2015.
If Apple Pay can make more people use their smartphones to pay for things, it could push companies like Google, Amazon and Microsoft to reach similar deals with retailers and credit card companies, making mobile payments more widespread.
Tens of thousands of retailers in the United States, including Whole Foods Market and Macy’s, will accept it. And because of a partnership with Stripe (founded by Limerick’s Colliston Brothers), a payments processing start-up, Apple Pay can help small app developers use the service to power their transactions.

Privacy concerns
Consumers, particularly younger audiences are becoming increasingly concerned with their personal privacy across the web, which has been fuelling the rise of applications that promote privacy. Apple will need to demonstrate to users that privacy and security concerns are effectively managed.

Irish Banking Federation amalgamates and expands reach to Brussels

The Irish Banking Federation has today announced that it has amalgamated with the Irish Payment Services Organisation (IPSO). According to press release issued from the newly formed Banking and Payments Federation Ireland, the merger of the two organisations had been underway for a number of months.

Strict new regulation of banking from Europe

Banking has become a pan-European affair

With over 70 domestic and international member institutions, Banking and Payments Federation Ireland will be responsible for the promotion of member interests, including lobbying and laying the conditions for profitable banking.

Coinciding with the launch of the Banking and Payments Federation Ireland, the new organisation has announced the opening of a Brussels based office to promote lobbying and influence decision-making at European level.


Surprise rate cut announced by ECB

Today’s surprise announcement by the European Central Bank that is will further reduce the base rate of lending from .15% to .05% will come as welcome news to the almost 400,000 residential tracker mortgage holders across Ireland.

Mario Draghi has major concerns about eurozone economies

Mario Draghi has major concerns about eurozone economies

This surprise move will result in monthly mortgage repayments falling by about €10 on a €200,000 or €120 annually” said Mr. Frank Conway.

Standard Variable Rate mortgage holders are unlikely to benefit from the surprise rate cut as lenders can choose to not pass on ECB rate cuts to those customers.

Bad news for savers

The rate cut is bad news for savers as lenders are likely to further reduce deposit interest rates from their present lows.

“The news for savers is not so good. This is a market where many deposit institutions have already significantly reduced the level of interest they pay to, in some cases, fractions of a percent. On top of that, savers that do earn some interest income are liable for DIRT of 41%. Savers are now persona non grata” said Mr. Conway.

The end of the line.
Today’s interest rate cut beings the ECB base rate of lending to a new historic low.
The ECB is sending a clear message that it wants to use up its more traditional tools in a desperate bid to stimulate the economies of Europe. Its next move may be in the form of non-traditional measures, such as quantitative easing as it seeks to get more credit to SME’s and homeowners” said Mr. Conway.
Families that will benefit from today’s interest rate cut should expect to have their mortgage repayments reduced by their lender within the next 4 weeks.

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