CRED 8.3 Version 1 credit unions
Requirement to maintain positive net worth
A version 1 credit union must at all times maintain a positive amount of capital.
CRED 8.3.1 R means that the sum of the items set out at CRED 8.2.1 R(a)-(c) must produce a positive figure, so that a credit union's assets will at all times exceed its non-capital liabilities.
CRED 8.3.1 R implements the principle that every pound saved by a depositor with a credit union should always be worth at least a pound.
CRED 10.5.1 R and CRED 10.5.2 R mean that bad and doubtful debts must be taken into account in establishing whether a credit union is maintaining a positive amount of capital.
Building reserves
A version 1 credit union must establish and maintain a general reserve.
If, at the end of any year of account, the amount in its general reserve stands at less than 10% of its total assets, such a credit union must transfer to its general reserve at least 20% of its profits for that year (or such lesser sum as is required to bring the amount in its general reserve up to 10% of its total assets).
For the purposes of CRED 8.3.5 R 'profits' means the profits resulting from the operations of a credit union in the year of account in question after deduction of all operating expenses (including payment of interest) and after making provision for the depreciation of assets, for tax liabilities and for bad and doubtful debts, but before the payment of any dividend.
A credit union may not transfer from its general reserve where its general reserve stands at less than 10% of its total assets.
Minimum initial capital
A version 1 credit union must have initial capital of at least £1,000.
For the meaning of 'initial capital' see CRED 8.2.1 R (5) above.
For the relationship between registration and authorisation see CRED 13.2.1 G. The purpose of CRED 8.3.9 R is to establish for these credit unions a minimum amount of capital at authorisation, out of which early expenses may be defrayed. It should be noted that the requirement in CRED 8.3.9 R does not affect a credit union's obligations to meet the other capital requirements that apply to it. The ability of a credit union to comply on a continuing basis with the other capital requirements that apply to it will be a central factor for consideration in any application for authorisation.
Capital requirement for version 1 credit unions wishing to lend amounts of more than £7,500 in excess of the borrowing member's shareholding.
- (1)
A version 1 credit union must not make a loan of an amount greater than £7,500 1in excess of the borrowing member's shareholding unless it has a capital to total assets ratio of at least 5%.
1 - (2)
A credit union which is owed by a member a total amount greater than £7,5001 in excess of that member's shareholding must maintain at all times, while such an amount is outstanding, a capital to total assets ratio of at least 5%.
1
1CRED 8.3.12 R (2) does not have the effect of invalidating existing loans if the capital to assets ratio falls below 5%.
CRED 10.5.1 R and CRED 10.5.2 R mean that bad and doubtful debts must be taken into account in establishing the capital to assets ratio.
Capital requirements for large version 1 credit unions
A version 1 credit union with total assets of more than £5 million or a total number of members of more than 5,000, or both, must maintain at all times a capital to total assets ratio of at least 5%.
CRED 10.5.1 R and CRED 10.5.2 R mean that bad and doubtful debts must be taken into account in establishing the capital to assets ratio.
- (1)
A version 1 credit union with total assets of more than £10 million or a total number of members of more than 10,000, or both, must maintain at all times a risk-adjusted capital to total assets ratio of at least 8%.
- (2)
'Risk-adjusted capital' has the same meaning as in CRED 8.4.1 RCRED 8.4.2 R (Risk-adjusted capital requirements for version 2 credit unions).