Management of Credit Union in Offaly makes recommendation on dividend

INTEREST rates have begun rising but management at Tullamore Credit Union is recommending the payment of no dividend to its savers this year.

If as expected the recommendation is adopted at the AGM on Monday, December 12 next, it will be the third successive year the credit union has been unable to make a payment from its surplus to members.

The fall of interest rates globally to near zero for many years had an impact on financial institutions everywhere with a dividend of just 0.1% offered by Tullamore Credit Union in 2019, 0.25% recommended in 2018 and 2017, 0.5% in 2016 and 0.75% in 2015.

However, Tullamore Credit Union's head of finance, Peter Barry, hinted in this year's annual report that savers might be rewarded in 2023.

Setting out the context in the international economic climate, Mr Barry said: “Inflation is a major concern and has led to increased interest rates in all developed economies, most lately in Europe. Whilst the full impact of the high level of inflation hasn’t yet hit home, rising costs are impacting our members and our own expenditure.

“On the flip side, rising interest rates result in higher returns for our investments. It has only been in the last couple of months that we have seen an increase in the rates offered to us and whilst it has had only a minimal impact on our return in 2022, we believe that 2023 will be much better.”

He said member savings increased in 2022 by 5.81% to €290.6m. “Whilst this is not ideal in terms of our reserve ratio which has decreased to a still very strong 19.76% (the Credit Union sector average is c.16%), it means that as interest rates rise, we will have ample opportunity to invest these funds and earn income on these savings,” he said.

“Our loan book increased by 6.44% to an all-time high for Tullamore Credit Union of €82.6m. The increase is evident in personal loans but also in our home loans. Whilst there has been a slight increase in arrears, we have increased our provision for bad debts to reflect same and we continue to hold adequate provisions of €6.3m for any potential loan losses going forward.

“In the year, our overall excess of income over expenditure amounted to €870,180. This is €282,291 lower than 2021 but it is important to note that it has exceeded expectations. It also includes a once-off expenditure of €541,000 on the development of a new IT system that will be launched in 2023.

“Once again, we must point out that the level of savings growth experienced by the Credit Union in 2022,which is not matched by a similar demand for loans, resulted in quite a low surplus for the year because investment returns, whilst strong, are nowhere near the returns of old.

“This is mainly due to the interest rate environment that prevailed for much of the year which gave little or no return on our members’ savings that we had invested. As stated earlier, this is changing and we hope that 2023 is the year that we return to receiving strong returns on our investments resulting in a higher surplus making funds available for distribution to our members.”

Ray Spain, Tullamore Credit Union chair, explained that the Central Bank had advised credit unions to exercise prudence when distributing surplus income.

“Based on guidance issued by the Central Bank, if we had insisted on payment of a dividend, the maximum payable would have amounted to just €2 for a member with savings of €5,000. For these reasons, the Board of Directors has decided not to recommend a dividend for the year ended 30 September 2022.”

In his report, new Tullamore Credit Union chief executive Paul Shaw focused on home loans, saying the credit union issued 63 in the past year and urged those considering taking out a mortgage to make contact.

“Our mortgage team loves to help our members with this crucial but, at times, daunting step in life’s journey. We only started providing home loans in 2019 but we already know what sets us apart from other lenders. Our unique relationship with our members means that we know you better and are best placed to deliver you the mortgage that you need,” said Mr Shaw.

“We also pride ourselves on being ready to respond when circumstances change or when things don’t go exactly to plan. For any members planning to buy or build a home during the coming year, please call in and meet our mortgage team. In uncertain times, who else would you trust with something so important?”

The AGM of the members of Tullamore Credit Union Ltd will take place in the Tullamore Court Hotel on Monday, December 12 2022 at 8pm. The meeting is also available by Zoom webinar.