Charity Bank to relinquish charitable status

The Charity Bank is to relinquish its charitable status in order to comply with new European banking regulations and allow it to attract more capital. The decision has the support of the Charity Commission, Financial Services Authority and Charity Bank's major shareholder, Charities Aid Foundation.

For several months the bank has been trying to find a way to comply with the new banking rules, but also with charity law. Provisions in charity law around asset distribution and dividend payments were at odds with the new banking regulations, which are aimed at improving banks' financial profile and behaviour.

The solution devised by the bank will mean that while it will cease to be a registered charity, it will retain its existing mission and charitable purpose and these will be enshrined in proposed new articles of association. It will continue to make loans to charities and social enterprises. This will include a mission lock requiring at least 90 per cent of the bank’s ordinary shareholders to agree to any changes to the existing charitable purpose.

Staying as a charity would have meant that Charity Bank could only grow its balance sheet by obtaining grants from charitable foundations. Changing its constitution to a for-profit bank will have the effect of attracting capital from social investors happy to accept a more modest financial return as long as it also delivered a social return according to Charity Bank’s chief executive Patrick Crawford.

Charity Bank hopes to grow its balance sheet from £93million to around £250million over the next five years. Its income for the last financial year was £4.9million.

In order to comply with charity law, certain property owned by Charity Bank must continue to be used to further the charitable purposes of the former charity. Therefore, its capital is to be transferred to Charities Aid Foundation, the principal shareholder in Charity Bank, to be held on trust for the current charitable purposes.  In return, CAF will make a capital grant to the Bank as a social investment to further the charitable purposes for which the property is held.

On 25 March the Charity Commission will publish details of the proposals that are required to effect the change. Responses will be invited and subject to the results of this consultation and the approval of the bank’s shareholders, the change will take effect by 30 April 2013.