On 6 October 2023, the PRA issued their annual review letter to Credit Unions. There were two versions of the letter. One for Credit Unions with up to £10million in assets and one for Credit Unions with between £10m-£50m in assets. While there is not a letter for those over £50m in assets, these Credit Unions should still consider the contents of the letters. Some of the key themes were:
- Challenging Macro Environment– Both letters highlighted that while current interest rates may have a short term benefits to the returns that Credit Unions receive they are likely to lead to impact borrowing levels and the level of bad debts. The PRA state Credit Unions should therefore be considering their business model and their credit and interest rate risks.
- Liquidity– Many Credit Unions are experiencing decreasing liquidity levels. The PRA state all Credit Unions should by the end of October 2023 review their liquidity management statement and be able to demonstrate how they have considered and acted on liquidity risks.
- Supervisory Statement– The letter to larger Credit Unions highlights the increased requirements for Credit Unions from Supervisory Statement 2/23. The PRA state that larger Credit Union Boards should by 31 October 2023 review the new supervisory statement, consider their business model and agree a plan to ensure ongoing compliance. These Credit Unions should ensure they document their consideration and plans.
- Succession Plans– The letter to smaller Credit Unions highlights the need for succession plans. There have been a number of Credit Unions who have recently ceased trading due to succession issues. They have said that Credit Unions who have key person risks and succession issues should consider the future of the Credit Union and the options available
All Credit Union Boards should review the letters which can be found by clicking here.