Prudential Regulation Authority Rulebook

15.1

The PRA expects credit unions that provide loans to corporate members^[13] should be mindful of the additional risks involved in providing corporate loans, for example business model risks, or difficulty predicting future cash flow.

15.2

Credit unions providing loans to corporate members are required to comply with the requirements in Rule 10.3 of the Credit Unions Part of the PRA Rulebook. The PRA expects credit unions that have notified the PRA that they are undertaking corporate lending to:

• establish overall and individual limits for these loans (while noting the statutory limitation^[14] that aggregate corporate loan balances must not exceed 10% of outstanding balances of all loans made). Separate limits should be considered for secured loans to corporate members;
• set a risk appetite (and limit) for these loans, agreed by the board. A separate risk appetite and limit for secured corporate loans should be considered;
• incorporate within monthly management information reports to the board, corporate lending levels (percentage of corporate loans that make up loan book and level of arrears associated with corporate loans at a minimum), with separate reporting for secured corporate loans. This information should be reviewed by the board regularly; and
• conduct scenario analysis to consider the risks of not recovering funds (for example, looking at the impact of a number of corporate loans defaulting at the same time).

15.3

Where a credit union undertakes secured loans to corporate members, the PRA may seek additional information from the credit union on the nature of its lending to corporate members, including:

• a quarterly review of existing loans (including performance of the businesses); and
• whether/ how funds could be recovered –commercial property generally has a significantly higher default rate than residential mortgage lending, and the credit union should consider scenario analysis to determine the impact this could have on their business.

15.4

Credit unions that provide loans to corporate members are expected to meet the liquidity stress testing expectations set out in paragraphs 12.1 to 12.4.