Bank of Lithuania: Development of credit unions is more sustainable

During nine months of this year the assets and deposits of the credit union sector grew modestly, and stricter requirements which came into effect helped decrease the volume of irresponsible lending, the Bank of Lithuania has reported.

In some credit unions, however, the risks are still managed with insufficient conservativeness, the Bank maintains.

In the third quarter of 2013, the assets of credit unions increased by 1.7 per cent and amounted to LTL 2.1 billion as of 1 October, but the loan portfolio, which represents the largest asset share, contracted by 1.6 per cent and made LTL 1 billion as of 1 October.

“While, overall, the volume of irresponsible lending within the credit union sector is decreasing, the quality of the loan portfolio of some credit unions, their possibilities for loan recovery and insufficiently conservative attitude to risk assessment are raising concerns,” says Vytautas Valvonis, Director of the Supervision Service of the Bank of Lithuania.

The loan impairment costs incurred by credit unions (LTL 27.5 million) was the main reason behind the credit unions’ loss-incurring operations, although, from the beginning of the year, 43 credit unions earned a profit of LTL 7.4 million, 32 operated at a loss and incurred a loss of LTL 21.6 million, and the general loss for the system equalled LTL 14.1 million.

According to the data of credit union reports submitted to the Bank of Lithuania, the largest loss (LTL 9.3 million) was incurred by the credit union Vilniaus taupomoji kasa. This credit union, according to the submitted report data as of 1 October 2013, had still not eliminated the violations of legal acts and deficiencies in its operations identified during its inspection.

With the coming into effect of tighter prudential requirements this year, most of the credit unions are restructuring their activities to comply with the new requirements. All credit unions complied with the liquidity requirement, and the general liquidity ratio of the system of credit unions was 57.37 per cent as of 1 October 2013.

According to the credit unions’ submitted data, the system’s capital adequacy ratio was 19.76 per cent as of 1 October. The capital adequacy ratio of two credit unions was below the requirement. As of 30 September, eight credit unions did not ensure compliance with the maximum exposure for a single borrower requirement. Some credit unions took measures and presented information to the Bank of Lithuania that, in October 2013, they were already complying with the prudential requirements.

The Central Credit Union of Lithuania, uniting 63 credit unions, earned a profit of LTL 1.3 million over nine months of this year (from LTL 759 thousand in the respective period a year ago) and complied with the liquidity and capital adequacy ratios with quite a significant reserve.