Featured Product

    PRA Letter on Modifying Rule on Minimum Provisioning Requirements

    October 07, 2020

    PRA issued a letter to credit unions notifying them of its decision to publish a model direction modifying a PRA rule on minimum provisioning requirements. The letter includes the detailed PRA rule modification available to all consenting credit unions from January 02, 2021 until December 31, 2022. PRA has taken this decision due to the ongoing stress credit unions face due to the COVID-19 outbreak and the importance of a credit union’s capacity to cure bad debts prior to 12 months. The letter reiterates the messages on engagement with PRA and regulatory reporting, also confirming the supervisory focus and priorities for credit unions in this period.

    The modification of PRA rule on minimum provisioning requirements is identical in effect to a modification available to all credit unions, which expires on January 01, 2021. Where credit unions consent to the modification, minimum provisioning requirements for bad debt will be reduced to the rates set out below:

    • 20% of the net liability to the credit union of borrowers where the amount is more than three months in arrears
    • 40% of the net liability to the credit union of borrowers where the amount is more than six months in arrears
    • 60% of the net liability to the credit union of borrowers where the amount is more than nine months in arrears
    • 100% of the net liability to the credit union of borrowers where the amount is more than twelve months in arrears

    Credit unions that have consented to the current modification must also consent to the new modification if they wish the modified rules to continue to apply to them after January 01, 2021. Credit unions can consent in advance of January 02, 2021, although the modification will not apply until that date. If taking up the modification, credit unions should be mindful of the overarching PRA requirement on provisioning and provision accordingly and appropriately. In the letter, PRA mentioned that some credit unions have changed their strategic approach to new lending and credit control amid crisis. If credit unions do make such changes, it is essential that Boards consider and accept the associated risks and the potential financial impact in the short, medium, and long term, in addition to ensuring they have focused management information that allows them to measure the success of their approach.

    In the letter, PRA also emphasized on the importance of a credit union’s cure rate as an indicator. The nature of PRA provisioning requirements, whether or not a credit union consents to the modification of PRA provisioning rules, means a credit union’s capacity to cure bad debts—particularly before they reach 12 months in arrears—is a key driver in terms of financial performance. The analysis of PRA shows that credit unions that engage with members whose loans are in arrears and get them paying again before the mandatory 100% provision hits at 12 months have a much better chance of avoiding financial difficulty. 

     

    Related Links

    Keywords: Europe, UK, Banking, COVID-19, Minimum Provisioning Requirement, Reporting, Credit Risk, PRA Rulebook, Credit Unions

    Featured Experts
    Related Articles
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.

    July 21, 2021 WebPage Regulatory News
    News

    BoE Announces Changes to Validation Rules for Form BTL

    The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.

    July 20, 2021 WebPage Regulatory News
    News

    BCBS Proposes Changes to Process for Reviewing G-SIB Methodology

    The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.

    July 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7281