BoE calls on credit unions to review their financial projects

The recommendation comes as part of the central bank’s Prudential Regulation Authority’s (PRA) annual assessment of the credit union sector. 

For those with assets worth more than £15m, it’s also asked for them to include stress scenario testing in their financial planning. These scenarios could include a further material decrease in lending, a decrease in saving and liquidity, a large increase in arrears and their combined impact. 

Reflecting on the current climate as a whole, the PRA acknowledged that CUs “continue to face a very challenging business and operating environment”. It added that, if conditions on the continent remain, this could negatively impact those in the industry in a number of areas. 

These areas include new lending, credit control and liquidity. These unions are also likely to incur increased operational costs, such as increasing energy bills. 

The PRA added: “Without taking action and proactively considering the risks they face, CUs could see a significant impact to their sustainability and viability. Each CU is different, and the level to which your CU will be impacted by current environment will depend on its business model and membership. 

“In line with current expectations, all CU boards should continue to be proactive in regularly monitoring their prudential position. To support this, CUs must be comfortable that management information provided to them is timely, accurate, relevant, and take steps to address any gaps.” 

Speaking to CUs with less than £15m in total assets, the PRA has said it will shortly approach those where it’s identified one or a range of challenges that exist. These include those that have a capital-to-assets ratio of below five percent, and that repeatedly fail to submit regulatory returns or returns that are materially inaccurate. 

It will also be speaking to CUs that have insufficient directors, or where it becomes clear directors do not appreciate or discharge the fundamental responsibilities they hold.