Tuesday, 26 May 2020

Bank of England eases rules for credit unions during pandemic

REUTERS/Hannah McKay

LONDON: The Bank of England has allowed credit unions to set aside less capital to cover borrowers unable to repay loans during the coronavirus crisis.

Where a loan is more than three months in arrears, a credit union can provision for 20pc of the loan with immediate effect until January, compared with 35pc under current rules.

“We recognise that credit unions across the UK are facing a period of unprecedented operational and financial challenges,” the BoE’s Prudential Regulation Authority said in a letter to credit unions.

Credit unions are member-owned, neighbourhood financial co-operatives providing loans and savings to typically less well off consumers.

They are a tiny part of Britain’s credit market with 2 million members and 3.3 billion pounds ($4.1 billion) in assets in 2018.

The BoE wants the credit union sector to grow to increase competition in lending, and had already cut capital requirements for large unions from mid-March to encourage more lending.

The temporary reductions in provisioning for loans in arrears announced on Wednesday can be used by unions of all sizes, if they choose to do so.

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