The management of lending risk in Irish community credit unions

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O'Sullivan, Patrick
McCarthy, Olive
Byrne, Noreen
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Saint Mary's University Centre of Excellence in Accounting and Reporting for Co-operatives (CEARC)
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Traditional loan assessment carried out by credit unions has been centred on the members’ history of savings and loan repayment record with their credit union. This has been in keeping with the member-owned, voluntary, self-help co-operative principles of credit unions in providing financial services to their members. In more recent times, Irish credit unions have been challenged to adopt a more formal approach to managing lending risk management in the context of a changed economic and regulatory environment. This paper examines lending risk management and its associated governance in four community credit unions in Ireland during two points in time. The first is between 2008 and 2012, a period marked by economic recession and traditional loan assessment. It then examines the revised approach to lending risk management adopted by credit unions post 2012 following a series of legislative and regulatory change for credit unions where more formal risk management processes and enhanced governance were introduced. It was found that lending by credit unions which maintained prudent management of loan risk outperformed lending by credit unions which took a less prudent approach. In addition, the study demonstrates how the application of risk management principles to the lending process can bring a level of clarity and a structure to loan underwriting, thereby enhancing the quality of the process. Good governance principles can positively influence the lending process and should provide the basis for a sound lending environment.
Credit union , Lending risk , Governance , Co-operative principles , Risk management , Irish credit union movement , Irish credit unions
O'Sullivan, P., McCarthy, O. and Byrne, N. (2017) 'The Management Of Lending Risk In Irish Community Credit Unions', Journal of Co-operative Accounting and Reporting, 5(1), pp. 79-101.
© 2017 Saint Mary’s University, CEARC; The Authors