Credit Union Quarterly Statistics – Q3 2020

The Bank of England publishes aggregate data every quarter based on credit union’s quarterly returns. Due to the time taken to prepare, submit and process the data it takes around 6 months for the data to be published. The data presented below was published on 29th January 2021 and is for the third quarter of 2020. Below are the headline figures for Great Britain (excluding Northern Ireland), along with charts covering the last 5 years.

• Credit unions (returns submitted): 269
• Total Members (including juniors): 1,415,309
• Total Assets: £2 billion
• Total Shares: £1.709 billion
• Total Capital: £226.7 million
• Loans: £994 million
• Income (quarter): £35.8 million
• Expenditure (quarter): £33.5million
• Profit / loss (quarter): £2.4 million

Great Britain – Movement over 5 years (Q4 2015 – Q3 2020) 

This is the second full quarter of data for the GB credit union sector since the start of the coronavirus pandemic which covers the period from July to September 2020. We continue to see the negative effects of the pandemic and consequential lockdowns, on credit unions and the wider economy. Given what we now know for the last quarter of 2020 and the start of 2021, we believe that these statistics will  bear the impact of the coronavirus for several more quarters to come. However, not every trend follows the direction set in the last quarter as we will discuss below.

Comment:

The long established trend here is for the number of credit unions to fall each successive quarter, however, the reduction of 8 credit unions is the largest since Q4 2016. According to the latest FSCS Plan & Budget, FSCS is forecasting for increased credit union failures in 2021 so this trend may accelerate further still.

As ever we will caveat that these figures are based on the number of returns submitted which is a reasonable proxy for the number of credit unions but may not always be entirely accurate. Credit unions submitting their returns late, or on time when they usually do not can skew these figures.

Also, we expect the number of credit unions to continue to drop owing to both the consolidation of existing credit unions and the lack of new credit unions seeking authorisation. ABCUL has launched a Strategic Merger Taskforce to facilitate credit unions merging from positions of strength to reduce the number of failures in the sector.

Comment:

Membership has fallen quarter over quarter at -1.6% (-22,000) erasing recent gains and taking the credit union sector back to 2019 levels.

Compared to the same quarter last year, membership increased by 0.1% (+779). This means on average (mean), each credit union in Great Britain attracted an additional 2.9 members over the last year.

Comment:

Unfortunately, loans have fallen by £466k or £1.7k per credit union on average which whilst a small reduction, however, this follows largest quarterly drop on record of £62 million or 5.88%.

Compared to the same quarter last year (Q3 2019), credit union lending fell by 1.6%, compared to an average annual growth of 7.6% over the last 5 years.

Comments:

Assets have increased 2.4% (+£131 million) since last quarter, this follows record quarterly rise of 7.2% and compares to an average 2% per quarter rise over the last 5 years.

Assets increased by 14.1% (+£246 million) on the same quarter last year which compares to an average rise of 7.73% over the last 5 years. This means that the average credit union accumulated an additional £917,000 in assets over the last year and for reference credit unions have grown by an average of just over £111,000 per quarter over the 5 last years.

Comment:

The combination of the records assets growth and significant drop in loans is that the loans to assets ratio has fallen for the second quarter in a row, but less steeply from 50.9% to 49.7% which is the lowest the ratio has fallen.

Comment: 

In this quarter we see income drop and expenditure increase. This has undone a temporary boost to credit unions’ profitability caused by the combination of the relief packages provided shortly after lockdown and the furloughing scheme. In addition, any reduction of lending activity takes time to filter through into affecting credit union’s surplus as the loss of income begins to mount over time.

Credit unions made a surplus this quarter of £2.4 million, a decrease of 69% or £5.4 million versus the last quarter.

Growth since last quarter:

• income: -0.6%
• expenditure: +18.3%
• profit: -69%%

Growth since last year:

• income: +2.4%
• expenditure: +5.8%
• profit: -29%

The average credit union posted a £8,000 surplus on a income of £133,000 and expenditure of £124,000.

Comment:

In percentage terms credit unions are reporting more arrears than at any time in the last 5 years or for any period we have data for. This is up from 8.05% last quarter to 8.13% this quarter and is a doubling from the start of the graph in Q4 2015. This is likely driven by three factors:

1. A real increase in arrears due to either increased risk tolerance or increased unexpected defaults
2. Credit unions treating arrears more cautiously than before due poor provisioning leading to a number of credit union failures and the additional regulatory scrutiny on this area over the last couple of years.
3. The additional impact of the pandemic on those on insecure incomes or little savings, pushing arrears even higher
4. The effects of FRS 102 meaning that more credit unions write off debts later which then show up on the annual return

At just over 8% arrears to loans ratio is well above the WOCCU target of 5% although credit unions can be run effectively and profitably at higher arrears ratios providing that loans are priced accordingly. The average credit union held £300k of arrears, up from £211k the same quarter last year.
N.B. The arrears include all arrears, even those over 12 months.

Comment:
Whilst the value of arrears has almost tripled at 288%… (see below)

Comment:
The number of loans in arrears has increased by 169% in the last 5 years, significantly less. This has impacted the average loan value in arrears considerably. We have charted this for the first time below.

Comment:
The average value of each loan in arrears has increased from £831 in Q4 2015 to £1,332 in Q3 2020.

Comment:

Capital has steadily increased over the last 5 years as the assets of the sector have grown. Capital increased by £4.5 million or 2% to £226 million compared to the last quarter and is a record high. However…

Comment: 

The capital to assets ratio has seen a drop from 11.4% to 11.3% and is the third successive quarterly drop. This is a direct impact of the high amount of shares taken on over the coronavirus pandemic which has significantly diluted capital.

The average capital held exceeds the highest capital requirement 10% (for those credit unions with £50+ million assets). However, this is not evenly distributed in practice with the vast majority of credit unions, particularly smaller credit unions, holding significantly less.

Of course, ABCUL achieved a huge capital lobbying win which was announced at our 2020 conference. For more information about this see our briefing on the capital changes which were passed as proposed here.

Comment: 

Liquidity stands at 30% which is slightly higher than the 5 year average of 28%. This is down from a high of 32% last quarter and this reduction may be due to credit unions seeking fixed-term deposits to mitigate the risks of a possible future negative interest rate environment.

Conclusion:

Overall, 2020 was an extremely challenging for year for credit unions and the economy at large. The simultaneous drop off in loans and the increase of arrears is a particularly concerning trend. Whilst credit unions seem to have shrugged this off in Q2, showing increased profitability, we were unfortunately correct in last quarter’s prediction that this was largely driven by UK Government stimulus measures and would taper off significantly.

More positively, credit unions have reported some recovery of their lending towards pre-coronavirus levels after a sharp fall in Q2, and continued depression through Q3. The next statistical release from the Bank of England is expected 30th April 2021 and we’ll be back then with coverage of Q4 2020.