LCCU in 2017 - 18
A very significant factor influencing members and the business in LCCU's latest financial year has been the roll out of Universal Credit. There are well publicised and continuing delays to people receiving their Universal Credit causing very real hardship to people in desperate need. The credit union has seen a large rise in small value loans to help people through the period of moving onto this new benefit. This impacts on the credit union as these small loans often cost money to issue at a time when capital is being required to greatly increase reserves.
The 2017-18 financial year was one of consolidation. The last two years’ annual reports highlighted the challenge in meeting the required doubling of capital asset ratios with effect from the 1st of October 2018. Meeting these targets without external support is extremely difficult and it was predicted that it would impact adversely on meeting LCCU's social objectives. Those forecasts have proven correct.
At the end of the last financial year LCCU were successful in increasing their capital asset ratio with the help of a grant funded by Lloyds Banking Group and the support of many individual and corporate members. However, this achievement came at a cost. As a result of the actions taken to ensure compliance with the new regulation LCCU reduced the amount of savings held by members, took less risk in lending, nudged up interest rates on smaller loans and stopped delivering a number of socially useful services that limit their ability to build capital. This saw a stagnation in the growth of the business after 10 consecutive years of high level growth in all areas.
The latest operating surplus made a contribution to strengthening their reserves, but LCCU still faces an ongoing challenge to meet the increased requirement of the Prudential Regulation Authority to hold significantly higher levels of capital.
At the end of the 2017-18 period key figures stood as follows:
- Membership remained fairly stable at 15,366
- Savings/share balances rose very slightly to £12,490,000
- Loans balances reduced slightly to £10,688,000
- Despite a smaller loan book there was an increase in loan interest income by 5% due to slight increases in some loan rates with the introduction on risk based pricing.
Their typical loan rate remains at 12.7% apr, significantly lower than most credit unions and compares very well with a typical UK credit card rate of 24%. Maintenance of a good loan book is vitally important as the credit union continues to move away from reliance on grant aid and towards financial independence and long-term sustainability.
Loan products continue to be attractive to members. This is particularly important as it evidences their ability to replace other sources of more expensive debt, and gets ever more people moving from becoming borrowers into being savers. As a result, LCCU continues to have a much higher loan to share ratio than most UK credit unions. This is essential to financial self-sufficiency.
Default on loans continues to be a very high cost to the business, particularly as a result of the less than scrupulous activities of profit motivated companies promoting inappropriate Individual Voluntary Arrangement (IVAs) and online fraud/identity theft. LCCU has tightened procedures for ID verification but such incidents of online fraud continue at unacceptable levels, causing very real problems for those affected by identity theft. This continues to be an issue for government, regulators and the financial services industry.
Finally, LCCU is pleased to have launched a new App for mobile devices. For most smartphone users this reduces the need to remember complex passwords and PIN numbers and allows members to have full access to their account at any time of day or night. The extension and improvement of online services is vital to making membership relevant and accessible to people with busy working and family lives.